Optimists will seize on today’s news that the unemployment rate slipped last month for the first time in more than a year. Good news, to be sure, if only because it breaks the formerly nonstop rise in the monthly jobless rate. But the modest decline to a 9.4% unemployment rate in July from 9.5% masks the ongoing job destruction that roars beneath this otherwise encouraging exterior.
Nonfarm payrolls were lighter by a still hefty 247,000 last month, the U.S. Bureau of Labor Statistics reports. That’s reassuring only by the dire standard of the far deeper monthly losses between September 2008 and June 2009. Relatively speaking, the labor market appears to be healing, or bleeding less profusely, to be precise. But equating this with good news is a bit like discovering that your boat has only nine leaking holes instead of 12. Your still taking on water, albeit at a slower rate, but the end result will be the same unless the trend changes: the boat sinks.
Indeed, virtually every corner of the labor market was taking on water last month, including the major sectors of goods producing industries (which lost 128,000 positions in July) and the all-important services sector (which shed 119,000 jobs last month). Perhaps we should keep the buckets handy for a bit longer.
Nonetheless, it’s important to recognize that the slowing pace of job destruction isn’t chopped liver. Ideally, the trend continues and later this year we’ll reach zero job loss. We expect no less in the coming months, short of a spectacular turn for the worse in the economy, which at this point looks unlikely.
The monetary and fiscal stimulus engineered by Washington since the crisis began has been helpful in slowing the recessionary forces, and some of that progress can be seen in the chart above. For another take on the improving picture in the labor market—i.e., the decelerating rate of bad news—take a look at the trend in ongoing fall in new filings for jobless benefits, as we discussed yesterday. Other encouraging clues include signs that the housing market may be bottoming out, if it hasn’t already. These and some other trends suggest that Q3 2009 GDP will be flat and perhaps even post a small gain, thereby giving more support to the idea that the technical end of the recession is near.
But as we’ve been emphasizing for some time, the technical end of the recession threatens to be far less satisfying this time in the business cycle. To be clear, a jobless recovery of some magnitude may be looming on the horizon, and it may roll on for longer than the crowd expects. Robust growth in the labor market is essential at this point, considering that a towering 6 million-plus jobs have been lost since this recession began in December 2007. Without a revival in the jobs creation, the expected rebound in the economy is less than assured as a solution to what currently harasses.
Perhaps we’re being overly pessimistic, although for the moment there’s some reason for at least reserving judgment about the breadth and endurance of the approaching “recovery.” Consider, for instance, our second chart below, which compares initial jobless claims and continuing jobless claims on an apples-to-apples basis. The divergence between the two in recent months is clear, namely, the decline in initial jobless claims has yet to be matched by a commensurate fall in continuing claims. The implication: while job loss is slowing, the mass of the previously unemployed are not yet finding work.
Granted, continuing claims tend to lag initial jobless claims, and so we shouldn’t rush to judgment. There’s still time for continuing claims to decline without yet raising warning flags. But the hour is late. This is already the longest downturn since the Great Depression and the economy’s still bleeding jobs at more than 200,000 a month. At this late stage, even moderate bleeding digs us deeper into a hole that’s already quite deep, making it that much more difficult to escape. The only solution is an even stronger recovery in the labor market, which at this point is open to some debate.
So, yes, we’re happy to see that the unemployment rate fell a bit. But from where we stand, that’s virtually irrelevant. As we’ve been discussing for some time now, the big challenge is still ahead of us. Staving off a deeper economic contraction was essential, and arguably that job is complete. But now comes the far tougher task of rebuilding what was lost. Unfortunately, quick and easy solutions total exactly zero.
–James Picerno, editor, CapitalSpectator.com and The Beta Investment Report (BetaInvestment.com)