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Labor Markets Even Worse Than the Headlines


Reflation will pummel the dollar and increase cost of acquiring non-US capital.

Editor's Note: Jack Lavery, former Chief Economist for Merrill Lynch, is now offering up his expert analysis in a newsletter on Minyanville. Learn more or sign up for a FREE 14 day trial of The Lavery Insight

Non-farm payrolls fell 663,000 in March, per the Bureau of Labor Statistics (BLS) establishment survey release earlier today. That brings the total decline in non-farm payroll employment to 5.1 million, since the recession/depression began in December 2007.

Of this 5.1 million person employment decline, 64.7% took place in the most recent 5-month period, November 2008 through March 2009. The labor market is deteriorating at an accelerating pace.

In my March 30 commentary, I had forecast a 700,000 payroll employment drop. The reality is worse than that as well. February's employment decline was reported on March 6 as 651,000. That was left unchanged at 651,000, but January was revised to an employment decline of 741,000 from 655,000, a worsening of 86,000. That effectively leaves non-farm payroll employment in March down 749,000, (663,000 + 86,000 from a downward revision to an employment level previously reported for January).

The BLS household survey showed an employment decline in March of 861,000, and unemployment claims are at 27-year highs.

The ADP National Employment Report of April 1 showed a 742,000 employment decline in March for the non-farm private sector. February's decline was revised to show a decline of 9,000 more than previously reported.

The ADP decline was paced by small businesses (employment 1-49) and medium businesses (employment 50-499). These firm sizes have been the lifeblood of employment growth before this recession/depression.

In the BLS detail all private sector industry categories saw employment declines except healthcare. Even government employment was off, due to cutbacks at the state and local levels.

The incidence of unemployment swelled by 694,000 in March to 13.2 million, bringing the unemployment rate from 8.1% in February to 8.5% of the civilian labor force in March, as forecast in my March 30 commentary.

If one considers the amount of under-employment (those working part-time who want to be full-time), plus "discouraged workers" (who have dropped out of the labor force), and those who had sought work in the past 12 months, but not in the four weeks preceding the employment survey (not counted as unemployed), it becomes clearer how the non-farm payroll headline is understating the stress in the labor markets.

The Obama budget deficits, his stimulus package, the continuing expansion of the Federal Reserve balance sheet, the game plan of quantitative easing by the Fed, and the Treasury initiative to remove toxic assets from the banks, with the help of guaranteed low cost loans backed by the Federal Deposit Insurance Corporation (FDIC), all reflect reflation to battle the threats of deflation/depression.

While I see some interim economic growth prospects later this year, I believe the unemployment rate could hit more than 11% at some point in 2010. The challenge is the headwind from the household sector and their extraordinary inclination to deleverage, to save, and to repair a balance sheet bludgeoned by declining housing and equity prices.

Reflation is the clear public policy intent, a course that will pummel the dollar, and increase our cost of acquiring non-US capital to finance government reflation.
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