Saturday, April 05, 2008
The most initial claims for unemployment insurance and the worst labor report in years highlighted the week's economic reports. Stocks and bonds ended with the S&P 500 Index up 4.2 percent to 1,370, now down 6.7 percent for the year, and the yield of the 10-year U.S. Treasury note rose 3 basis points to 3.48 percent.
ISM Manufacturing Report: The nation's broadest measure of manufacturing activity rebounded slightly, from 48.3 in February to 48.6 in March, but remained below the 50 mark that delineates expansion from contraction.
The index has now posted three sub-50 readings in the last four months and, after the many other poor economic reports of recent months, few analysts are expecting any sort of rebound similar to that which was seen in the spring and summer of 2007.
While the low-40s range for this index is generally considered to be "recession level" (as was the case for much of 2001), it is possible that, due to increased exports resulting from a weaker U.S. dollar overseas, the index may remain above these levels this time around.
As evidenced by weak motor vehicle sales and continuing job loss in manufacturing reported later in the week, the exact level of the index seems to make little difference.
In the most recent report, new orders fell from 49.0 in February to 46.5 in March portending further declines in the overall index in the months ahead.
New export orders, however, continued their recent strength rising 0.5 to 56.5 in March, one of the few categories that continues to indicate expansion. Prices paid surged from 75.5 in February to 83.5 in March, the highest reading since 2003, driven higher by rising commodity prices that manufacturers are increasingly passing on to consumers.
Construction Spending: Construction spending continued to contract in February, declining 0.3 percent after an upwardly revised 1.0 percent decline in January. On a year-over-year basis, construction outlays were down 3.5 percent. Single-family home construction fell 5.7 percent in February and spending on multi-family units declined 0.3 percent, a continuation of the ongoing downward spiral in residential building where more and more former homeowners become renters again.
Motor Vehicle Sales: The slump in auto industry sales deepened in March, even the likes of Toyota Motor Corp. feeling the pinch of a slowing U.S. economy. Toyota's sales fell 10 percent in March compared with the same month a year ago and the company has seen sales decline in seven of the last nine months leading many analysts to believe that the company now has too much manufacturing capacity in North America.
Total sales, including both domestics and imports, fell to the lowest level since 1996. General Motors Corp. and Chrysler reported declines of 19 percent and Ford sales fell 14 percent. All three U.S. auto makers are now losing money in North America and further contraction will likely result in further job losses.
Initial Jobless Claims: The recent surge in the number of initial claims for unemployment insurance was corroborated by the dramatic decline in nonfarm payrolls on Friday. The most recent spike in jobless claims will likely be reflected in next month's labor report.
Breaching the psychologically important "recession" level of 400,000 was but one more in a now overwhelming list of economic indicators that have led many analysts to pin-point December or January as the start of the current recession.
The exact determination will not be known at least until this summer when the National Bureau of Economic Analysis examines all the data for the current period including economic growth.
The spike of 38,000 from last week's upwardly revised total of 369,000 jobless claims is part of a continuing pattern of developing stress in the labor market which now appears to be accelerating.
Continuing claims rose 97,000 to 2.9 million as of March 22nd (the most recent week for which data is available), a figure that is likely to go much higher in the weeks ahead. There were no underlying factors that may have skewed this report, although seasonal adjustments around the Easter holiday have been problematic this year. Analysts stopped looking for ways to explain this surge in jobless claims after the labor report was released on Friday.
Employment Report: The labor report for March was much worse than expected as job losses were reported for the third consecutive month. Revisions to prior months' data were surprisingly high, lending further credence to the notion that a recession is already underway.
The BLS (Bureau of Labor Statistics) reported that nonfarm payrolls declined by 80,000 in March along with losses of another 67,000 in the combined revisions for January (from -22,000 to -76,000) and February (from -63,000 to -76,000).
This brings the total job loss to 232,000 in 2008 and, excluding government jobs, the year-to-date figure drops to -288,000.
The unemployment rate surged from 4.8 percent to 5.1 percent and, after declining somewhat in recent days, expectations for further rate cuts by the Federal Reserve have now increased. With short-term interest rates at just 2.25 percent, there's not much room to cut, but things are looking increasingly bleak and desperate times call for desperate measures.
Job loss leaders were in the usual areas - construction (down 51,000) and manufacturing (down 48,000) - along with a sharp decline in professional and business services (down 35,000), mostly temporary help which is often viewed as a leading indicator.
Within the construction category, jobs in both residential and nonresidential sectors are now being slashed with 31,000 fewer residential construction jobs in March and 16,000 fewer doing work in nonresidential building. Employment at food service and drinking establishments gained 23,000 last month and, while the March total was below average, it was still quite strong. This sub-category has been a stalwart in job creation over the last few years. The health care industry continues to create an outsized number of jobs - 33,500 in March and a whopping 452,000 on a year-over-year basis.
Overall, this is quite a dismal report and, if this recession is anything like the last recession, things could get a whole lot worse in short order.
Summary: It's hard to spin the data coming out of the Bureau of Labor Statistics these days and fewer analysts are attempting to do so. Three consecutive months of nearly 80,000 jobs lost is probably the final bit of evidence that anyone would need to confirm what is happening in the U.S. economy. As employment is a lagging indicator, the slowdown that many believed started late in 2007 has been confirmed by the recent developments in the labor market.
Where things go from here is, unfortunately, not a pleasant prospect since job losses tend to exacerbate economic slowdowns creating what many refer to as a "vicious circle", where job losses cause consumers to pull back, leading to less consumer spending, resulting in further job losses. If this recession is like every other recession in the post-World War II era, unemployment will rise sharply from this point.
The Week Ahead: The coming week will be relatively light on data, highlighted by a report on international trade on Thursday. Also scheduled for release are reports on consumer credit on Monday, pending home sales on Tuesday, ending the week with import/export prices and consumer sentiment on Friday.