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Unemployment Report: August 7, 2009

Posted by Larry Doyle on August 7, 2009 9:02 AM |

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

Unemployment Rate
May 8.9%
June: 9.4%
July: 9.5%
August: 9.4%

>>LD’s comments: This number is surprising on its face, as expectations were for the rate to move to 9.6% or 9.7%. What happened? Overall, this report does certainly reflect a growing sense of stability in employment BUT this figure also reflects the fact that 422k people have left the labor force, meaning they have given up looking for work. Long term unemployed rose by 584k and now exceeds 5 million people. As time goes by, more and more of these people will stop receiving unemployment benefits.

Non-Farm Payroll (click here for definition of this term)
May: loss of 519k
June: loss of 322k
July: loss of 467k
August: loss of 247k

>>LD’s comments: This number, along with a positive revision of a net 43k jobs to prior months, is another indication of growing stability. Construction lost 76k jobs. Manufacturing lost 52k jobs. Before the economy can do better, it has to stop doing worse. This report plays into that. However, I would ask the question if the economy will merely adapt to overall lessened employment for a protracted period.

Average Hourly Earnings
May : +.1
June: +.1%
July: 0.0%
August: +.2%

>>LD’s comments: Another positive sign, although it is muted by the fact that last month’s hourly earnings was surprisingly weak. Over the two month period, an average of .1% per month is to be expected. Will this support a sudden pickup in consumer demand? I doubt it.

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

>>LD’s comments: Again, this piece of data is consistent with the other parts of this report.  For perspective, though, be mindful that last month’s reading was the lowest figure for this data since 1964.

Further Color: While many economists will spin this report as a clear sign of an improving economy, I maintain it is a sign of an adapting economy. I am surprised and disheartened by the fact that so many people have actually left the labor force. That level of discouraged workers, along with the level of long-term unemployed, plays into a real structural problem and long term drag on our economy.

Market Reaction: Equity futures have spiked by approximately .7%, but the biggest market reaction is in the bond market as interest rates have moved higher by approximately 12 basis points across the curve. What is going on there? The market is going to price in an expected increase in rates by the Federal Reserve sooner than Ben Bernanke would otherwise prefer. Recall how Bernanke at his recent Congressional testimony emphatically stated he would leave rates unchanged for an extended period. The market reaction is stating that he may not have that luxury. Why? Fears of inflation.

Additionally, this report will make the underwriting of the massive Treasury supply (3yr, 10yr, 30yr) next week very challenging.

The greenback also had a nice spike after this report. This move is consistent with a market expectation of an increase in rates by the Federal Reserve.

Can the equity market continue to rally in the face of rising rates?  I will monitor closely.

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  • Good commentary Larry. 422,000 people leaving the workforce is NOT good for the economy and certainly isn’t good for consumer spending. This certainly is a BETTER report, and we are going in a better direction, but I do not think it is ever “good” to lose 250,000 jobs in a month. It will be interesting to see where the hourly earnings number and the workweek number goes in the coming months. Lots of companies (like Hewlett Packard for example) are continuing to cut employee pay, sometimes by as much as 30%.

    I’m also curiuos to see the bank failures today (every Friday is bank failure Friday), as it has been strongly rumoured that Guaranty Bank, a huge bank here in Texas, is about to fail and be seized by the FDIC, which would cost the FDIC about $6 billion. Same with Colonial Bank I think out of Florida.


  • Larry Doyle


    Good post about the banks. The FDIC insurance fund is running perilously close to zero. The FDIC does have a $500 billion line of credit from Treasury, but psychologically it is troubling to think that line may have to be tapped.

    There is an ongoing debate between the large money center banks and the regional/community banks about the need for another assessment by the FDIC. The smaller banks feel it is brutally unfair to increase the assessment across the entire industry.

    Lots to monitor. Thanks for continuing to help us navigate!!

  • Moy

    Do you not think the fears of Inflation are a bit unjustified at this point, unemployment rate is still very high which are expected to keep high for the next few months. Also Bernanke has signalled no immediate rise of rates.GIven the circumstances a rise of 12 basis points looks to be too much of a spike to me

  • Larry Doyle


    The markets are simply looking at the amount of liquidity throughout the system and projecting that if any semblance of economic traction develops it will generate velocity in the growth of the money supply fueling inflation.

    The fact that Bernanke has very openly and emphatically stated he will keep the Fed Funds rate low for an extended period only plays into the fears of inflation because it will further fuel growth in the money supply.

    There are forces at work to keep inflation in check but there is so much liquidity in the system it is like a fuel supply which could be explosive if sparked.

    In my opinion, rates would already be another 50-75 basis points higher if not more if it weren’t for all of the purchases of U.S. Treasury and mortgage bonds by the Fed.

    Be mindful that the greatest factor in inflation is the mere expectation of inflation.

    This situation will be very interesting.

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