The Economy: The Good, The Bad, And The Ugly
Today’s unemployment report contained some of the first unequivocally good news that I’ve read in an economic report in a long time. The huge decrease in layoffs (“only” 350k jobs lost) was much better than expected, and while one month doesn’t make a trend, it does provide some hope things won’t disintegrate again like I think they will. The stock market may not go up much (indeed it may fall quite a bit over the next few weeks) but that is due to technical reasons and not much should be read into it.
Now for the bad in the report: the unemployment rate jumped enormously from 8.9% to 9.4%. This is both due to an increase in the workforce from people graduating and the increasing inability for those laid off to find new work. That jump was much worse than expected, and shows that while firings are decreasing, hiring is still nearly nonexistent. I’ve had both personal and anecdotal experience that completely backs this up.
Also, next month is a revision month where they correct the last six months and will most likely discover that they “missed” 500k-700k job losses (in actuality it’s due to false adding by insane models). With that, the unemployment rate will most likely go up to 9.7%-9.9%. Obviously in real life that impact is already felt, but the fact is that there is a good chance that the unemployment will have jumped up 1.0% in only two months, something that none of the banks’ nor economists’ models have taken into account. All those “stress test” passes were predicated on a peak unemployment rate that we may hit in the early fall — meaning that the financial system’s expectations are completely off.
Another bad to keep an eye on: the 10 year Treasury burst through its resistance level it had been maintaining and is currently at 3.8%. Unless things reverse soon, a 4-4.2% yield is likely, which will push mortgage rates above 6% and damper long term debt issuance. The mortgage blogs I read (e.g. this) are in a near panic as they are scared that everyone is going to walk away from the market. They are begging the Fed to step in and buy mortgages..although that’s definitely their perspective because all that will do is drive the dollar lower and make gas prices skyrocket even more (which they readily admit).
And as for the ugly? What green shoots?
Update: Here are some numbers behind my assertion about how long people are staying unemployed. Apparently it’s a record.
Update 2: Apparently hours worked were way down. “So, total labour input was much weaker than the headline payroll suggests and this is vividly illustrated in the aggregate-hours worked index, which fell 0.7% MoM and something ‘green shoot’ advocates will not like discuss since this was actually worse than the 0.3% MoM drop in April; this takes the three-month trend to a -8.6% annual rate…Put another way, if companies had held hours worked constant in May instead of cutting them, to achieve the total labour input they achieved last month would have required — get this — a 927,000 payroll cut.”
I use the word “unequivocally” and look what happens!