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Unemployment Report July 2, 2009

Posted by Larry Doyle on July 2, 2009 9:02 AM |

The widely anticipated July Unemployment Report covering the month of June was just released. Let’s dive right in and take a look at the numbers . . .

Unemployment Rate
April 8.5%
May 8.9%
June: 9.4%
July: 9.5%

> LD’s comment: consensus forecast was for the rate to move to 9.6%. However, it is now widely regarded that this rate will not only go into double digits soon, but then stay there. Why? The workforce is going to grow as individuals who would have retired stay employed or look to reenter the workforce.

Non-Farm Payroll (click here for definition of this term)
April: loss of 663k (revised from -663k to -616k and back to -652)
May: loss of 539k (revised from -539k to -519k…thanks AK!!)
June: loss of 345k (revised to -322k…thanks AK!!)
July: loss of 467k

> LD’s comment: this number is decidedly worse than the forecast of a loss of 365k jobs. Revisions to prior months were mildly positive adding 8k jobs. Overall assessment of this number is ‘no green shoots’ here.

Average Hourly Earnings
April: +.2
May : +.1
June: +.1%
July:  —  (i.e unchanged)

> LD’s comment: no surprise that there is little wage pressure …the annual increase in wages of 2.7% is the lowest in 4 years.

Average Hourly Workweek
April : 33.2 hours
May: 33.2 hours
June: 33.1 hours
July: 33.0 hours

> LD’s comment: this number is a big deal!! The 33.0 hour workweek is the shortest workweek since 1964!!! What does this mean? An indication of no pickup in orders or inventory pickup. This number combined with the hourly earnings is an indication that retail sales will remain weak as consumers continue to be constrained and insecure about their future.

Further Color: The auto industry lost 27k jobs last month. The industry has lost 335k jobs in total, a full third of the total employment in the industry. Manufacturing lost 136k jobs, professional and business lost 118k jobs, construction lost 79k jobs.

Long term unemployed, that is individuals out of work more than 27 weeks, now represents 30% of overall unemployed. This is very troubling. Bloomberg reports,

Unemployment will “remain painfully high for several more years,” Federal Reserve Bank of San Francisco President Janet Yellen said this week.

Market Reaction: equity futures have sold off sharply on this weak report. The futures were down approximately .2 right before the report’s release and are now down more than 1.5%. Interest rates have moved lower by 3 -4 basis points led by the front end of the curve. The dollar got hit marginally after the report as well.

I view this report as a “reality check.” What do I mean? The economy is in the process of adjusting to the lack of credit provided by the shadow banking system and that credit is not returning anytime soon.

In this economic environment, I believe unemployment is a leading indicator and thus I view this report as a sign that delinquencies, defaults, and foreclosures will continue to increase across all classes of debt.

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