HSBC on the Labor Report

November 7th, 2008 12:36 pm | by John Jansen |


Nonfarm payrolls collapsed by 240,000 (-200,000 exp), with net downward revisions of 179K for the previous two months. Manufacturing lost 90K (-27K due to the Boeing strike), construction fell 49K while service jobs fell 108K. Meanwhile, the unemployment rate shot up from 6.1% to 6.5%, as the household measure of employment (which is used to calculate unemployment) fell 297K, while the labor force grew 306K. The Gulf-Coast hurricanes in mid-September may have made the decline in payrolls and rise in unemployment a little worse, but the deteriorating trend is absolutely clear. These results are consistent with about -3% GDP in the fourth quarter, our current forecast.

Payrolls are falling at a pace that we expect to continue for the next few months. However, the unemployment rate is shooting up quicker. We had expected a Q4 average of 6.5% (with December hitting 6.7%). That could still happen, but the risk must now be that we end the year at 7%. The unemployment rate has now risen 2.1ppts from its cyclical low point in early 2007. But it appears we still have a long way to go up – we look for a peak of 8% later in 2009 or early 2010. Of course, after a number like today’s, it would be understandable to raise the forecast towards 8.5-9%, but we think some caution against overreaching may be appropriate here.

The decline in payrolls was widespread.  For instance, the payroll diffusion index (which works like the ISM index with a break-even reading of 50), collapsed to a new cycle low of 37.6, with manufacturing at 27.4. Our implied service sector diffusion index also hit a new low of 42.  In other words, the pain is everywhere, not just construction, manufacturing and finance.

Construction has now lost 663K from its peak, manufacturing has lost 492K since the peak in total jobs, while finance/insurance so far has only shed 131K. The wheels are also starting to come off the four sectors that were doing all the addition for payrolls (government, food services, education, health). Food services and education are now seeing declines (-11K each). Government (+23K) and health (+32K) are managing to still post good gains.

Hourly earning were in line at +0.2% (3.5% yy), but with aggregate hours worked falling 0.3% (after -0.6%), compensation looks to have fallen outright in nominal terms (although in real terms it is set for a rise given the drop in inflation due to gasoline prices). Overall, no threat whatsoever from wage inflation, and it won’t be long before markets fret that wage growth may be way too low.

A broader measure of unemployment, the pool of available labor, rose by 500K, taking this adjusted unemployment rate from 9.1% to 9.4%, up from 7.8% just six months ago. The duration of unemployment shot up to 19.7 weeks, from 18.4, and compares with 16.2 in March. Meanwhile, the proportion of people who are choosing to leave their jobs slumped to a new cycle low of 9.3%, the lowest since 2003, suggesting job insecurity has increased sharply just in the past two months (10.7% in August).

Overall, our forecasts suggest things will get worse before they get better.  We expect Nov and Dec payrolls to average about -230K, before averaging about -170K in the first half of 2009. With monetary policy no longer effective, the Fed should just cut rates to zero earlier rather than later (we have the Fed cutting to zero in April next year, but could now be earlier), while the need for fiscal stimulus now has become that much more urgent in the wake of this report.  Ian Morris

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  1. 5 Responses to “HSBC on the Labor Report”

  2. By Taylor on Nov 7, 2008 | Reply

    I’m curious why no one makes the connection between rampant immigration (both legal and illegal) and accelerating job losses. No other country has such a liberal policy of ‘let them in at all costs.’

    Legal immigration = 1 million/yr +several hundred thousand temp visas (h1b, L1, etc.).

    If we simply halt all immigration for 1 year we can wipe out what are self inflicted job losses. I’m all for immigration in the good times, but it seems we are over-loading a sinking life boat.

    And please, don’t mention ‘the skills shortage’ myth, billionaires like Gates propagandize.

  3. By cyclingscholar on Nov 8, 2008 | Reply

    Better yet would be to send back home the 20 million illegal immigrants in the US, a major burden on our social network and ripe for the pickin’ by ACORN looking for phantom votes. Too bad McCain didn’t say about these immigrants:

    THIS is a have a choice. (1) A jail sentence, or (2) deportation. Get in line BEHIND all the people who want to migrate here legally.

    But no no! “I might lose colorado!” Ya lost colorado anyway, you moron. Might have carried Ohio, Penn, Va, and Michigan…


  4. By cyclingscholar on Nov 8, 2008 | Reply

    By the way SKILL Shortage is NOT A MYTH. 20% of american COLLEGE FRESHMAN need REMEDIAL ALGEBRA…a NINTH GRADE COURSE. And they are so ignorant they expect college credit for it.

    If it wasn’t for Koreans, Japanese, Indians, Chinese and other asians (notice no community organizers?) majoring in science at American universities, our technology sector would be dead in the water.


  5. By vex on Nov 10, 2008 | Reply

    Taylor’s got his loony right-wing hammer and goddammit, he’s gonna find hisself some nails.

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