June Employment Data Show Job Losses Reaccelerating and Stocks Sell-Off

publication date: Jul 1, 2009

Update 7/2/09: Stock market investors were disappointed with the change in employment in June with Non-farm payrolls falling 467,000 in June, for a much larger loss than the consensus expected decline of 365,000 jobs. Brian Wesbury and Robert Stein, Economists with First Trust observed the following:

"The labor market remains tough terrain: companies are still letting more workers go than they are hiring and wages have stagnated in the past few months. But today’s data do not reflect another leg down for the economy as a whole. Payroll losses were higher than expected but still less severe than they were earlier this year. In addition, the unemployment rate ticked up less than expected. Although some will attribute the smaller than expected increase in the jobless rate in June to a decline in the labor force (the number of people working or actively looking for work), the labor force has increased 1.2 million in the last five months. Without this increase, the jobless rate would be 8.8% today, not 9.5%. Other recent data on the labor market show improvement. New claims for unemployment insurance dropped 16,000 last week to 614,000. Continuing claims for regular benefits fell 53,000 to 6.702 million...The US economy has never healed in a perfectly straight line with all aspects of the economy getting better at the exact same time. As is often the case, the labor market is lagging behind other indicators showing the recession is over, including yesterday’s ISM Manufacturing report. A healing economy with a lagging labor market is a recipe for a major improvement in corporate profits."

This last point in particular is important to keep in mind. Stock prices are ultimately driven by corporate profits. After the extensive job layoffs in a severe recession like we've experienced this year and last, companies are far, far leaner. As business rebounds, companies are notoriously slow to rehire folks which helps to boost corporate profits. 

Also, here's the updated graph for percent change in the total nonfarm payroll employment. Now, you can see the June data which is just a small blip down. And my point of last month that as far as this data goes, this still isn't as severe as some other recessions, still holds true.


FRED Graph




The "non-farm" payroll employment report released on Friday June 5, 2009 contained some interesting data. Brian Wesbury and Robert Stein, Economists with First Trust observed the following:

"Non-farm payrolls smashed through the upside of consensus expectations in May, declining by 345,000, while revisions to March and April added 82,000 jobs. Combined, this brings the net job loss in May to 263,000. This is substantially better than the consensus expected decline of 520,000 jobs and the smallest drop since August 2008."

They go on to state, "Businesses are shedding jobs at a much slower pace than earlier this year and we would not be surprised to see payrolls start to increase by the end of the summer. The speed of the turnaround cannot be ignored. Private-sector payrolls fell 749,000 in January. In the four months since, payrolls have declined at a consistently slower and slower rate, reaching -345,000 in May. In addition, for the first time since late 2007, we got positive payroll revisions for previous months. Upward revisions are usually associated with economic expansion, not recession."

And check out this revealing graph that looks at these same numbers but analyzes changes in the national employment numbers as a percentage of the total employed. As you can plainly see, there were many prior recessions (shaded bars on graph) where there were as many or more job losses than in this recession. So much for all the gloom and doomsters saying this is the worst economy since the Great Depression.

 

FRED Graph

 



 

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Eric Tyson is the only best-selling personal finance author who has an extensive background as an hourly-based financial advisor and who does not accept speaking fees, endorsement deals or fees of any type from companies in the financial services industry or product or service providers recommended in his articles, books and his publications.