Amazing the difference one day makes in the employment outlook. Yesterday, the market shot up because "only" 512,000 in the U.S. applied for initial claims -- down from 532,000 the previous week. We saw banners: "Employment Situation Improvement," "We Have Turned the Corner", and "Jobs Fuel Market Rally".
Today we learn that 190,000 jobs were lost in October. That's about 40,000 worse than widely expected. The unemployment rate rose to a 26 year high, 10.2%. The Canadian rate rose from 8.2% to 8.4%.
Understanding the numbers
For those of you that subscribe to my twitter, you know that I was critical of the analysis of the U.S. Initial Claims release on November 5. The media noted two pieces of good news. First, the level of claims decreased by 20,000. It is true that is good news. Second, Continuing Claims decreased by 68,000. It is not clear that is good news.
The reason is simple. Many people drop off the regular program not because they get a job -- but because the program expires for them. These job-seekers then have a chance to apply for extended benefits or emergency benefits. Hence, you need to look a little deeper.
While the reporting of Extended Benefits and the Emergency program (EUC) is delayed, the recent numbers show an increase of 25,000 in Extended Benefits and a surprising 90,000 in the EUC.
The bottom line is that people are not getting jobs.
Let me give you some perspective on how serious this is. We have lost 7.3 million jobs in this recession. The last really bad recession began in 1981. Many don't remember this was a time of considerable turmoil with some short term interest rates going above 20%! On a population adjusted basis, the jobs lost in the recession that began in 1981 was 4.3 million. At the time, that was really bad.
In addition, it is not over.
Yes, it is true that the rate of job loss is slowing. That is good news. However, we really need to get at least +100,000 in non-farm payrolls to stop the rate of unemployment from rising. We need about +200,000 to start recovering jobs. That is hugely different from where we are today.
Now, you are used to me saying negative things. I did see three pieces of good news in the employment report. First, temporary employment rose by 33,000. That is often a leading indictor of employment bottoming out. Second, the amount of overtime slightly increased. Again, this is a leading indictor. Finally, the revisions of the previous two months were also good news.
My guess is that the temp employment and the overtime are completely overlooked by market observers.



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