No matter which way you look at it, the US jobs market is dead and won’t get better for more than a year.
The IMF acknowledged it last week when it forecast that the US jobless rate would be 9.7% in 2010 and 9.6% in 2011 (8.3% was the April forecast from the Fund for next year).
That’s why the jobless rate and its composition is now the most important of all US economic indicators and the one to watch for signs of the economy turning, even though it’s a lagging indicator.
It tells us that there’s no improvement happening in the jobs market, and none about to happen. Read with the forecast from the IMF, Americans can look forward to another miserable year.
This is why another big spend up from the Fed is very much on the cards, with its boost to commodity prices and the value of the Australian dollar.
The immediate outlook for many Australian exporters (and jobs), tourism (and jobs) lies in the interaction between this terrible jobless rate in the US and the Fed’s attempts to do something about it.
So Friday’s rotten report (95,000 jobs lost, rate unchanged at 9.6%) is now seen as bringing closer the decision by the US Fed to commit to another round of spending billions of dollars to try and kick start the economy (so-called quantitative easing).
But with interest rates already at zero, the Fed’s balance sheet triple the size it was three years ago, and a 10% deficit-to-GDP ratio, there’s been no sign of any economic momentum other than what we saw with the inventory rebuilding and stimulus sending last year.
Mortgage rates are at all time lows, and yet house sales and starts remain around their lows or moribund, with foreclosures and refinancings absorbing a lot of demand.
Banks are not lending, people are not borrowing if their houses are worth less than they were and on top of all this, and there’s the continuing doubt about jobs and incomes.
Excluding the Census worker layoffs, US payrolls fell 18,000 in September.
This is the first time since December of last year that the underlying level of nonfarm payrolls fell in a month
The US economy is still 7.75 million jobs shy of where it was when the recession began in December 2007.
The recession ended in June 2009, so by this stage of the cycle, the recovery should be creating tens of thousands of new jobs, boosting incomes and demand.
Nothing could be further from the current reality.
(By way of contrast Australia has added over 400,000 jobs in the same period, with 380,000 coming in the past year or so.)
US economists point out that the real rate is closer to 11%-12% when the lower participation rate is taken into account, compared with several years ago. In other words hundreds of thousands of Americans have just stopped looking for work, period.
This is underscored by the broad US jobless rate measure jumped to a five-month high of 17.1% from 16.7% in August. And wages didn’t change in September, for the second time in four months.
US economist Dave Rosenburg estimates that 20% of all personal income in the US is now coming from the federal government.
He also points out that with the fall in the dollar and the rise in oil prices in the past fortnight, US oil petrol prices are headed back to the $US3 a gallon mark. That will crimp retail sales as we approach the big end of year Thanksgiving-Christmas selling season.
Private payrolls rose 64,000 in September, which got some analysts claiming there was still life in the jobs market. But the market estimate was for a 75,000 rise (some early estimates were around 90,000).
But 83,000 state and local government jobs were lost (mostly teachers sacked as cost savings at the start of the new school year).
Dave Rosenburg said that was the second biggest fall recorded in this sector, but was ignored by analysts trying to make a virtue out of the small rise in private jobs.
"Yet the prime focus is on private payrolls. Are we then to assume that these civil servants don’t matter? These folks don’t spend money and contribute to GDP? Is that the takeaway? This may be emblematic of the very real possibility that the state & local government may have killed the gold goose.
"Full-time jobs are falling by the wayside as businesses move aggressively to cut their benefit costs.
"This could well be one of the unintended consequences of the Obama health care plan and the unknown small business costs that come with it.
"Full-time jobs slid 106,000 in September and that brings the decline in just the last four months to a not-so-cool million.
"Some will claim that the 17,000 increase in temp agency hiring, as per the payroll survey, is a good leading indicator of future job creation.
"However, when you cross-reference the payroll survey with the Household Survey, it is painfully evident that the reliance on temps is not some great forward-looking barometer of rising labour demand ahead but rather a deliberate "just-in-time" hiring strategy that helps contain costs with no commitment to the new recruits.
"Looking at the entire data release with a fine-tooth comb, it is safe to say that this was by far the weakest employment report of the year. In addition to stagnant wages and hours worked and the decline in full-time jobs and ex-Census employment, the diffusion indices, which measure the breadth of the private payroll employment gains, were very poor.
"This is no time to mince words; the U.S. labour market is in horrible shape," Rosenburg wrote over the weekend.
