Monday, December 8, 2008

2 million more jobs lost? Could be

The November employment report was miserable. Monthly job loss, -533,000, was the biggest since 1974 in levels and since 1980 in percentage change. Since December 2007, 1.9 million jobs have been lost, while 1.3 million of those jobs were cut in just September through November – more than were cut in the 1980 recession. Headlines suggest a 1981-1983-style labor contraction is underway. Well, we aren't even close; such a decline implies at least another 2.1 million jobs lost, and possibly a 500,000-1,000,000 monthly decline in payroll.

Last week the payroll report sent a shockwave through the headlines.

Jobs Numbers Fall Off Table In November
As November Payrolls Fall, Fed's Toolbox Is Limited
U.S. Job Losses Signal Recession Will Be Long, Deep
U.S. Loses 533,000 Jobs in Biggest Drop Since 1974

The job report spurred these articles, too:

Obama Says Job Losses Show ‘Urgent’ Need for Action
Hill leaders say jobs report argues for car rescue

If it takes a really bad job report to get a Detroit bailout going, what kind of headlines will we see going forward? Furthermore, Obama claims that his fiscal stimulus will add another 2.5 million jobs over the next two years. But if the recession is like that in 1981-1983, that many jobs may be lost over the next 6 months.

The table lists the characteristics of nonfarm payroll over the last seven recessions. In levels, the 1981-1983 and 2001-2003 labor contractions produced the greatest job loss, -2.7 million jobs each. However as measured by the percentage decline in payroll, 1974-1975 and 1981-1983 were the worst, with -2.7% and -2.9% loss in payroll, respectively.

The implied 2008/2009 job loss, as measured by the total percentage decline in payroll (column 4), is the most for the 1981-1983 labor contraction, -4 million jobs slashed, and the least for the 1969-1970 contraction, -1.4 million jobs lost (already surpassed that). The job loss required to match previous recessions is (column 5 minus 1.9 million jobs already lost in 2008):
  • May 1960 – April 1961: -1 million more jobs
  • August 1974 - June 1975: -1.8 million more jobs
  • August 1981 - February 1983: -2.1 million more jobs
  • March 2001 – August 2003: -0.9 million more jobs

So if we experience another 1981-1983-style labor contraction,we aren't even close. At least another 2.1 million jobs will be lost, and probably over the next six months. Furthermore, the losses are likely to be heavily weighted in just a few months, so we could see another 500,000-1,000,000 monthly decline in payroll.

It seems dismal - especially if the labor contraction is worse - but don't forget: Congress is hell-bent on spending as much as they possibly can. A fiscal stimulus is likely to push the economy out of its economic rut sooner than later.

From the NY Times:
“The numbers are giving us a darker view than is actually the case,” said Chris Varvares, president of Macroeconomic Advisors, a research firm, adding that some of the economic indicators that have been flashing red are based on subjective surveys of businesses and households.
Rebecca Wilder

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