Employment Report Update
Today's employment situation report showed a month-over-month loss of 84,000 jobs and a jump in the unemployment rate to 6.1%. Prior months were revised lower (larger job losses) so the report is even weaker than it seems on the surface.
As we noted yesterday, there is a factor affecting all of these data -- the "emergency" extension of unemployment benefits. This has distorted the normal relationship between initial jobless claims and the monthly change in non-farm payrolls. If we give some credence to today's report, it suggests that initial claims have indeed been somewhat exaggerated.
To be very clear about this, the jobless claims are from people who are actually unemployed and deserve benefits, so it is not a "fake" count. It is more like taking unemployed from a long period of time and bunching them into a single month.
The jump in the unemployment rate may reflect the same factor. To qualify for unemployment benefits one must be actively looking for work -- the same test that is used to be counted as unemployed in the survey. Steve Liesman on CNBC just raised this question. He wondered whether respondents who were getting unemployment benefits might respond to the employment survey question differently, just to be consistent.
It is an interesting thought. We might add that most people do not understand or believe the difference between government agencies. The federal unemployment pollsters do not report to the state employment agencies, but who knows or believes that?
Conclusion
Serious job losses continue, indicative of a weak economy, operating below normal trend growth. Job losses in this range are consistent with GDP growth of about 1%.
We might not ever reach the popular recession rule of thumb of two quarters of negative growth, but prolonged loss of potential output is just as serious. Dueling politicians and economists will debate whether this is technically a recession, including the Bush spokesman this morning saying (predictably) that it is not. Meanwhile, the odds increase that the official NBER action will eventually call this a recession. If so, the starting date will go back to the peak of growth.
