E-piphany

SIFMA can declare that the Friday before the Independence Day holiday is a full trading session, but they can’t make traders actually trade that way. Stock and bond market activity was lethargic and fairly non-descript (stocks fell 0.5%, the 10y note finished at 2.98%); however, the Employment report at least made sure that everyone hitting the road for a long weekend will have something to think about.

The Payrolls number was quite close to expectations at -125k. Private payrolls contributed 83k, slightly below the 110k expectations but close enough, while economists did an excellent job of nailing the drag from Census workers. The Unemployment Rate took an unexpected drop, skittering down to 9.5% from 9.7% versus expectations for an uptick. But after that pleasant news, the rest of the report was pretty unfortunate.

The length of the average workweek dipped slightly. This number wiggles some from month to month, so by itself it isn’t so concerning. Average hourly earnings declined outright by 0.1%, the largest amount of this cycle. (When you combine those two facts – fewer hours and less pay per hour – it implies that income took a fairly large step back, at least on a monthly basis). And the reason for the decline in the Unemployment Rate appears to be not that workers are finding jobs, but that they are leaving the workforce because they are discouraged. The number of discouraged workers rose to a marginal new cycle high (see Chart below, source Bloomberg). People, in short, are giving up and dropping out of the work force.

Discouraged workers at a new cycle high

And small wonder. The median unemployment duration went to a new all-time high (since the 1940s, anyway, when that series begins) and shows no signs of slowing its ascent (see Chart below, source Bloomberg).

Extended benefits and long periods of unemployment - which causes which?

Taken together, this paints the picture of an employment situation that is at best treading water, but more realistically one that is marginally worsening. The problem with the charts above aren’t the levels, per se – they are high, but six months from now they will still be high. The problem of course is the trend, or rather the lack of any sign that the trend is improving. I want to point out that this should not be news. None of the economic trends that we track from month to month is showing any sign of improving at this stage, and as I have pointed out repeatedly the economy looks to be plodding along in just about the condition it was in before Lehman’s bankruptcy, before the government saved Fannie and Freddie, before the Federal Reserve cut rates to zero, before the massive fiscal stimulus was voted on. Vehicle sales: weak. Employment: weak. Manufacturing output: good, but fading fast as the stimulus dollars fade. Construction, home sales, confidence: weak, weak, weak. Retail Sales: weak. Leadership: yep, that too.

Don’t ask me if I have a solution. I don’t have any “solution” if by that one means “something that doesn’t hurt very much.” Ripping off the band-aid is going to hurt. Suck it up.

Well, anyway, we get a long weekend. I am also taking Tuesday off; my wife and I are going to a spa for our anniversary. Yes, a spa. What I know about this particular spa is that no Diet Coke is available. That’s all I need to know. It’s going to hurt. But I will suck it up.

The comment will return on Wednesday.