Will Unemployment Continue to Climb?

This article originally appeared in The Daily Capitalist.


Last Friday the latest employment numbers came out and revealed that private employment was up by 67,000 jobs, but overall unemployment was up, to 9.6% from 9.5%, because of government worker layoffs (mainly Census workers). This means that 14.9 million people are unemployed (under the narrower U-3 definition).

The broadest measure of unemployment, the U-6 measure -- which includes "marginally attached" workers, such as those that haven't looked for a job in the last four weeks, or that have given up looking but want jobs, or temp workers who would like full-time jobs -- went up to 16.7% from 16.5% on a seasonally adjusted basis (on an unadjusted basis, it was down to 16.4% from 16.8%).

Does this signal a turnaround in the employment situation? I don't think so. Here are the official trends:



It's easy to see from the chart above that employment gains have flattened since January, 2010.

Here's another statistic to look at for the week of August 28:



While the above jobless claims numbers are a bit of a mixed bag, the trend shows clearly in the chart. The last two weeks of claims declined slightly, but the dark red line shows the four-week moving average which shows rising claims.

Other indices such as the Monster Employment Index, a monthly analysis of US online job demand, declined to 136 from 138. The Challenger mass layoff August report declined to 34,768 from 42,676. Then the ADP employment index for August declined to a negative 10,000:



"The ADP national employment report is computed from a subset of ADP records that in the last six months of 2008, represented approximately 400,000 US business clients and approximately 24 million US employees working in all private industrial sectors."

So where's unemployment going?

I'll let others analyze the faults of the Bureau of Labor Statistic's methodology and certain apparent inconsistencies. David Rosenberg gives a good report today on that, and Mish Shedlock, as usual, thinks the BLS data are phony because of the "Black Box" birth-death business formations model. Mish is no doubt correct.

There are several important trends I believe are driving and will continue to drive employment and I mentioned them last Thursday in my post on weakening manufacturing data, and especially rising inventories. This trend will lead to higher unemployment and Friday's BLS numbers bear this out as manufacturing shed jobs. According to the report:
 

Manufacturing employment declined by 27,000 over the month. A decline in motor vehicles and parts (-22,000) offset a gain of similar magnitude in July as the industry departed somewhat from its usual layoff and recall pattern for annual retooling.
The largest gains were shown in health care (+28,000), construction (+19,000), and professional temp workers (+17,000).

These gains are not indicative of healthy private employment growth in my opinion. Health care is now being driven by Obamacare and Medicare, construction is driven by Recovery Act spending since new private development has fallen off a cliff, and temp workers show that businesses are still reluctant to hire.

My post Thursday (Important Manufacturing Indicators Look Weak) reported on weakness in new manufacturing orders, rising inventories, and weak consumption data. David Stockman reported Friday on "private incomes" for June which were actually negative, which belies the optimistic report on private wages and salaries being up by 0.4% (see Today's Income & Spending Report Generates Illusion of Gains).

Also, on Friday the ISM came out with their Non-manufacturing Index, and the report was grim:
 

The ISM non-manufacturing report shows broad and deeper-than-expected slowing. New orders at 52.4 are down more than four points in August for the slowest rate of month-to-month growth so far this year. Employment, which in this report includes government workers, is signaling contraction, at 48.2 for a nearly three point decline for the worst reading since January. The composite headline index at 51.5 is down exactly three points for what is also the worst reading since January. ... Backlog orders are basically flat, export orders are down, deliveries are showing less delays, and general business activity is slower.

You can also see from the above chart, that this index has been flat to declining since March 2010.

The report on durable goods orders report for July also was weak:
 

The bounce back in July [+0.3%] was led by the transportation component. Most other components slipped. Excluding transportation, new durables orders dropped 3.8%, following a 0.2% rise in June. While durables orders are a volatile series and some month-to-month dips are to be expected, the latest news is disappointing... Nondefense capital goods orders excluding aircraft in July fell 8.0%, following a 3.6% jump the month before. Shipments slipped 1.5% in July, following a 1.0% rise in June. However, orders and shipments for this series have shown strength for several months.

Just a few more bits. The Philadelphia Fed reported that its regional manufacturing index fell to -7.7 in August compared with 5.1 in July. Philadelphia reported that new orders rose in August, at an index of 55.0, but was way down from July's 64.6 for the slowest reading of the year. They also reported inventory backlogs jumped to 56.2, a negative factor.

Lastly, there's consumer sentiment:
 

Consumer confidence is weak reflecting an increasingly negative assessment of the jobs market. The Conference Board's index did rise 2-1/2 points from July but August's 53.5 level is still down almost 10 points from May (July revised six-tenths higher to 51.0). More say jobs are hard to get, at 45.7% of the sample's initial 3,000 respondents versus July's 45.1% for the worst reading since February. Again, direction is a special concern as pessimism has increased over the past two months. Confidence in future income improved slightly but remains very depressed with more seeing a decrease, at 16.1%, than an increase at 10.6%.

These factors will continue to depress employment and indicate weak economic growth.

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