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A Ray of Light? Further Analysis of the May Jobs Report



June 05, 2009 – Comments (10)

Here's what David Rosenberg had to say about this morning's jobs report.  I'll tell you why I disagree with his assessment of it after:

Where Perception Diverges from Reality
The headline nonfarm payroll figure came in above expectations at -345,000 in May — the consensus was looking for something closer to -525,000. The markets are treating this as yet another in the line-up of 'green shoots' because the decline was less severe than it was in April (-504,000), March (-652,000), February (-681,000) and January (-741,000). However, let's not forget that the fairy tale Birth-Death model from the Bureau of Labour Statistics (BLS) added 220,000 to the headline — so adjusting for that, we would have actually seen a 565,000 headline job decline. At least initially, this skew to the data is being readily dismissed.

To Mr. Market, this was not a case of employment declining 345,000, it was a case of the rate of change improving by 159,000 from April and by 496,000 from the weakest point of the cycle back in January. So, what Mr. Market is doing is extrapolating this so-called improvement into the future and drawing the conclusion that employment is going to start to turn positive on a 'first-derivative' basis by August, at which time we will all be bidding au revoir to the recession. 

I completely agree with Rosenberg that anyone who takes the 345,000 number at face value and believes that job losses are headed to 0 any time soon and that the recession is over is way off base.  Add in the fact that the Census Bureau added 70,000 jobs to the report and the numbers clearly aren't good.

However, what Rosenberg fails to mention is that the absurd birth / death model that the BLS uses has been adding phantom jobs to the labor report for a loooong time.  You can't back out the birth / death additions from this month and compare it to the numbers from previous months without backing them out there as well.  Apples to apples, jobs are still being lost at a rapid rate BUT the pace of the deterioration in the labor market has slowed significantly.

This is the first time that I have had a serious problem with Rosenberg's assessment of the economic data during this recession.

I much prefer The Big Picture's Barry Ritholtz's analysis of the report:

While many view the decelerating job losses as signaling the end of the recession, they appear to me as signaling the end of the panic period of the credit crisis. We are now in an ordinary, as opposed to historic, recession.

I completely agree with this assessment.  Another positive aspect of the May report was the slowing rate of temp job losses.  Many economists view temp jobs as a leading indicator for regular jobs as they serve almost as an entry point to full-time positions.  One can debate whether that is actually the case, particularly in the current recession, but temp jobs are definitely something to keep an eye on.

Further evidence that the pace of the decline in jobs is slowing can be seen in this week's weekly jobless claims.  Much like the May employment report, the weekly jobless claims were bad...the number of people filing new claims for unemployment insurance in the week ending May 30 fell 4,000 to 621,000. 

That is a terrible number.  That's a lot of parents who will have a harder time providing for their children.  When one thinks about this in those terms, this is a very, very sad situation.  However, looking at things objectively (one might say in a machiavellian manner) there was a ray of light in the numbers.  The number of people continuing to receive unemployment insurance actually dropped for the first time in 20 weeks

Similarly, while the weekly jobless claims have been terrible...over 600,000 for 18 consecutive weeks, the numbers have stopped getting worse and they are actually improving slightly.  They have dropped in seven of the last nine weeks since peaking in late March.

I'm not saying that the economy is in great shape or that things will get better soon, just that the end-of-the-world scenarios that many are paining seem less and less likely as the year progresses.  As I mentioned in my previous post, for some time I have believed that the rapid rate in the deterioration in the economy that we witnessed at the end of 2008 and the beginning of 2009 would begin to moderate and that we eventually would settle into a several year period where the economy muddles along in something between an "L" and a "U" shaped recovery with period of slower growth than we have become accustomed to over the past decade.

I may or may not have time to post another message before the end of the day.  Everyone have a great weekend.


10 Comments – Post Your Own

#1) On June 05, 2009 at 2:00 PM, tonylogan1 (27.69) wrote:

Curious... How many of the people that are no longer receiving unemployment assistance are doing this because they got jobs vs the ones that just ran out of time on unemployment.

I'd suggest that if the unemployed are still not working, but not counted, the gap between U3 and U6 may be rising, and it will result in some bad things for the economy. If they are actually employed, then nevermind.

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#2) On June 05, 2009 at 2:10 PM, motleyanimal (38.54) wrote:

There's a light!!!!!!!

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#3) On June 05, 2009 at 2:16 PM, goldminingXpert (28.82) wrote:

The government had a press conference to deny rumours that this number was cooked. Therefore, it was cooked. Rally on.

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#4) On June 05, 2009 at 2:45 PM, TMFDeej (97.81) wrote:

Hey Gold.  I think that you're giving the folks in the government a little too much credit.  A lot of people work at the BLS and there is a decent level of turnover there.  As a big believer in the incopitence of the Federal government I personally would be absolutely shocked if they were able to cook the jobs number without the fact that they did so eventually leaking out.

The theory of occam's razor probably applies here.  What is more likely, that a large group of government employees were able to successfully make up fake employment numbers and no one knows that they did or that a group of armchair economists / conspiracy theorists who believe that we never landed on the moon were slightly off on their forecast for the labor market...which was still terrible, just not as bad as they thought it would be?


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#5) On June 05, 2009 at 2:48 PM, goldminingXpert (28.82) wrote:

Statement of U.S. Labor Secretary Hilda L. Solis on May 2009 employment numbers
PR Newswire
WASHINGTON, June 5 /PRNewswire-USNewswire/ -- U.S. Secretary of Labor Hilda L. Solis issued the following statement on the May 2009 Employment Situation report released today:

[report goes on]



If that doesn't raise one's suspicions, what does? Probably just a rumour, but a mighty powerful rumour nonetheless.

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#6) On June 05, 2009 at 2:53 PM, portefeuille (98.77) wrote:


I like that!

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#7) On June 05, 2009 at 2:57 PM, goldminingXpert (28.82) wrote:

A ray of light?

I see this:

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#8) On June 05, 2009 at 3:07 PM, StopLaughing (< 20) wrote:

In theory at least you have 26 weeks of regular unemployment and then an additional 33 weeks on top of that from the Obama Adm. However, there are several quirky rules.  Most truly unemployed people who want to draw unemployment are drawing it.  

There are also some who are getting paid for temp or part time work as independent contractors and simply off of the record (no soc or income tax) black market work and/or barter work who are also continuing to draw unemployment as they are underemployed but reporting as officially unemployed. 

Yes I know Alstry never considers this in his rants on unemployment. U6 probably overstates unemployment.

If the number of people who are actually drawing unemployment checks goes down that is a big positive.


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#9) On June 05, 2009 at 4:38 PM, russiangambit (28.86) wrote:

The unmploeyement started escalating in Oct-Nov 2008. Unemployement beneits run for about a year, so expect a wave of really desprate people coming in this fall. There are no jobs being created and without unemployement benefits a lot of people will not have enough people to pay rent and buy food.

As for B/D distrotion - I agree that it was there for a while but it is about the same size as it was a couple of years ago. But if couple years ago it was probably 70% wrong, this time it is likely to be 130% wrong, and since it is a big number, the distortion is also very big.

Next month expect a lot of college kids to join the workforce, the unemployement number is going to be really ugly.

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#10) On June 05, 2009 at 5:38 PM, tonylogan1 (27.69) wrote:

The college kids dont count as unemployed if they never get a job in the first place.... So the number will look better than the real life on the street.

Bad news for Mom and Dads... Good news for bad investors

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