Thoughts on the unemployment report

June’s larger-than-expected drop in nonfarm payrolls and 26-year high in the unemployment rate are sobering reminders that the worst recession since the 1930s has not yet released its grip on the nation’s economy.

It’s disappointing to see another 467,000 jobs disappear, especially given the solid improvement we saw in May.  And calls are growing that another stimulus plan is needed to dislodge the economy from its slump and begin creating jobs.

I’m not sure a new stimulus plan is necessary, but I do believe the funds already earmarked from the current plan have to be released more quickly and in a way that is more focused on economic activity. 

That seems unlikely since planned government expenditures take time to move through the pipeline, and a new bill is needed in order to re-direct funds.

But I digress so let’s get back to the job situation. The chart (data source: BLS) below compares nonfarm payrolls since the start of the current recession with job losses from the 1981-82 recession, adjusted for population growth.  Month 1 equals the first month of the recession.

Although losses in the early 1980s were steeper early on, the credit crisis that nearly blew apart the financial system back in September turned a mild recession into what is now being called The Great Recession, flattening the job market.

Comparing the unemployment rate provides us with mixed results.

Unemployment was much higher in the early 1980s when the Volcker-induced recession began – the ratcheting up of interest rates to squash inflation.

And the peak of 10.8% is quite a bit higher than June’s 9.5% rate; however, unemployment has risen faster this time around, and the current rate appears headed on a collision course with 10%.

Some good news, relatively speaking

But I’m determined to end this post on what I believe is a positive note.  Unemployment is a lagging indicator and won’t start heading lower until the economy has started on its long-awaited ascent.

But jobless claims are a current indicator and provide a weekly snapshot of business confidence.

Though the downward trek has been painfully slow and weekly claims have been stuck above 600,000 since the end of January, the trend is headed in the right direction. 

Coupled with a number of other key indicators that show the recession is easing, I feel the economy will eventually bottom sooner rather than later.

Consequently, the pace of layoffs will soon be reflected in the weekly number, just as the Challenger report released on Wednesday revealed that larger firms are throttling back on layoff announcements.

Steep recessions are usually followed by strong  recoveries. See Steep recessions and subsequent recoveries.  But housing is still stuck near he bottom and consumers remain reluctant to spend. As a result we appear to be setting up for a W- or U-shaped recovery.  See L, W, U, V – the alphabet soup of economic recoveries.