Unemployment at Record High, But Economy Improving?
by Hiland Doolittle
In a market where mixed signals generate strong upturns in equity markets, a better than expected non-farm payroll report was greeted with strong global support. In some quarters, analysts even began to wonder if the improving non-payroll report signaled that the recession was ending.
Combining the May non-farm payroll improvement with recent reports showing an increase in home sales with a rise in consumer confidence, investors raised hopes for a rebound in the second half of 2009. Once again, speculation increased about buy-and-hold strategies for equities.
According to the U.S. Labor Department, employers cut 345,000 jobs in May, down from the revised 504,000 losses in April and the 652,000 trimmed jobs in March. The May losses surprised the market predictions and supported recent gains in equity markets. May losses were projected to fall into the 520,000 range.
Despite the fact that since December 2007, more than 6 million American jobs have been lost, investors jumped at the welcome non-payroll news. The May report indicates a surge in new employment opportunities with 350,000 new jobs filled compared to just 120,000 in April.
To help improve the job situation, the March and April non-farm reports were adjusted to reflect smaller than reported employment downturns. March was lowered to 652,000 layoffs while April now shows 504,000 losses.
Is it Real? Is the Economy Improving?
Experts show concern that the non-farm payroll data is being misinterpreted. Kurt Karl, of Swiss Re in New York summarized the report:
Good news at last. At some point we had to start moving to the 300,000 range. After all, we already laid off an incredible amount of people. So, this reading is probably not an outlier, we are likely to keep improving on that front until the end of the year
While a simple statement reflecting a realistic look at a dismal job situation, the hard facts show that non-farm unemployment stands at a startling 9.4%. Meanwhile, General Motors layoffs have yet to be fully considered. The 9.4% unemployment level marks a 0.5% increase since April.
3.8 million Americans have been out of work for six months or more. The number of unemployed Americans is the highest since the Labor Department began issuing its monthly report in 1948.
Additionally, the typical American employed worker is losing hours. May’s report shows weekly payroll averages 33.1 hours per week, down from 33.3 hours in April. Additionally, a recent private survey by ADP indicates that there are 10 cities in the U.S. with unemployment in excess of 15%.
Improvement struck several employment sectors. Construction lost 59,000 jobs in may compared to 108,000 in April. The service industry lost 120,000 jobs compared to 230,000 in April as manufacturing absorbed Chrysler’s job losses show 156,000 losses. These are hard losses in peak markets.
Total change in non-farm payroll = – 345,000
& Private Sector = – 338,000
- Natural Resources & Mining = – 10,000
- Construction = – 59,000
- Manufacturing = – 156,000
* Durable goods = – 131,000
* Non-durable goods = – 25,000
- Services = – 120,000
* Wholesale Trade = – 21,900
* Retail Trade = – 17,500
- Transportation = – 14,500
- Utilities = – 200
* Information & Media = – 24,000
* Financial Svcs & Real Estate = – 30,000
* Professional & Business Svcs = – 51,000
* Education = + 7,900
* Health Svcs = + 36,400
* Leisure = + 3,000
* Government = – 7,000
High Unemployment Hits Hard
A look at the total unemployment figure sparked an upturn in oil prices. The 9.4 non-farm unemployment coincided with a sharp decrease in oil, which had been headed above $70 per barrel. Phil Flynn, of Alaron Trading in Chicago explained; “The unemployment numbers were great in that there were fewer people losing their jobs, but the rate of unemployment rose more than expected. This is disappointing for the market as it raises worries about the long-term prospects in the job market.”
As the world’s largest oil consumer, adverse U.S. economic reports impacts the oil markets immediately. Oil has been steadily moving up since hitting a low of $30 in the winter months.
Projections are that crude oil will be at $85 by year’s end and $95 by the end of 2010. Before the May upturn, oil had been mired in the $60 range.
As U.S. Treasury debt prices fell sharply, the dollar rose against the yen and fell against the euro.
5 States Moving on to LOWER Unemployment
In a report from Moody’s, projections are that 5 states expect an increase in private employment by the fourth quarter 2009. Due to the density of high tech jobs in the northwest, the region is well positioned to spark the rise in employment.
Colorado, Idaho, Oregon, Texas and Washington are all expected to show improved employment. Texas jobs will improve due to the oil industry but the other states will benefit from their technology industries. Another factor adding to better conditions in these states is the fact that residents have better than average household credit ratings. Analysts expect the housing market to improve in these states first.
Moody’s also configured a second wave of states recovering from the recession. Alabama, Georgia, Nebraska, New Mexico, North Carolina, North Dakota and South Dakota are predicted to bounce back in the first quarter of 2010.
2ns quarter 2010 recoveries are expected in Alaska, Arkansas, Iowa, New Hampshire, South Carolina, Tennessee and Wyoming. Factors evaluated in the Moody’s report were job demand, income, credit quality, real estate and consumer spending.
About the Author - Hiland Doolittle
Hiland is a professional writer with extensive entrepreneurial experience. He is a graduate of St. George’s School Newport, RI and the State University of New York at Albany where he majored in history. He has been active in the real estate business for 30 years and has founded and sold several businesses.
Hiland currently writes for several financial sites and is a published author of the novel The Last Parade. He has recently completed a manuscript for a children’s book entitled Sami and The Minnow Man.
