Talk about understatement.
Here’s what I wrote last week about data to be released:
“The employment report next Friday will reflect the claims data and could show a drop in payroll jobs of as much as 300,000 which would be the largest decline since October 2001 following the terrorist attacks one month earlier. That report will cap what is expected to be another flurry of bad news.”
We didn’t get a “flurry of bad news” but a veritable blizzard!
Monday, we learned of a further fall in construction and manufacturing -- and the official declaration that the nation is in recession and has been since last December.Tuesday’s data suggested new bottoms to the automobile sector.Wednesday’s reports started with an over-the-top surge of mortgage applications but then quickly turned negative with a sharp increase in job layoff announcements and a drop in activity in the servicing sector.Thursday brought another report of more than 500,000 initial claims for unemployment insurance.And, then came Friday which blew everyone away with the report the nation lost 533,000 jobs in November, the largest month-month decline in nearly 34 years, followed by an almost overlooked report that one of every ten mortgages in the country is either delinquent or in foreclosureWhile the jobs piece of the employment report got most of the attention Friday, the more important number was probably the sharp decline in the number of people working: down 673,000 for the month and almost 2.4 million in the last 12 months. At this stage in the economic cycle, the number of people actually drawing paychecks -- not the number of jobs -- is more significant. Indeed, the jobs data would double-count individuals who may have two jobs, or more likely, may have had two jobs. Coupled with a decline in the work week -- to the lowest level since record-keeping began in 1964 -- aggregate earnings, and thus consumer spending power, will tail off sharply.
According to Friday’s report, the percentage of people of people 16 years of age and older without jobs unemployed jumped to 38.6%, the highest level since February 1993. (Even excluding those over 65 -- although many are working -- the percentage would drop to about 26%, higher than the unemployment rate computed during the Great Depression -- when the definition of “unemployed” was different than the definition used today.)
There were some hidden nuggets in the employment report -- few positive.
Although fewer people were working in November than in October, not all of those individuals without jobs joined the ranks of unemployed (defined as out of work, available for work and looking for forward), implying an increase in discouraged workers. While it may sound obvious, the increase in the unemployment rate was driven by the increase in unemployment. If the labor force had only dropped with the decline in those working, the unemployment rate would have been unchanged at 6.5%.
That arithmetic argument aside, this report underscores the widespread nature of the recession and, with a sharp falloff in real estate and underwriting employment means no quick fix for the segment which led the downward spiral: housing. If there was a positive in the negative numbers, it might be in the continued drop in construction employment, specifically among residential construction workers who accounted for 35,000 of the 82,000 construction jobs lost in November. That decline suggests a cutback in construction of new homes which will translate, eventually, into a decline in inventories.
The actual job numbers are likely somewhat worse than the data in this report,” according to Dean Baker of the Center for Economic Policy Research, explaining “the Bureau of Labor Statistics is imputing more jobs into the data for new firms than it did for the same months last year.” Since an economic slump is not the best time to start a new business, “this figure will almost certainly be revised down sharply in the benchmark revision next year, showing an even more rapid rate of job loss for these months.”
The only positive number in the week just ended was the dramatic increase in mortgage applications. Total mortgage demand jumped 112.1% -- the largest week-over-week gain in the 18-year history of the MBA application index. Year-over-year though (using a 52 week moving average) application activity is down 5.8% and refinance applications tripled from a week earlier -- the 203.3% week-to-week gain also the largest percentage increase since the MBA record-keeping began.
But, while exciting, this survey has to be taken in context: it reflects only applications, not actual mortgage lending which is subject to tighter lending standards and tempered by declining home values which are especially important in refinance transactions. Indeed, the spike in refis underscores household budget constraints, as homeowners attempt to supplement or replace declining household income.
Given tight lending standards, the sharp increase in application activity also reflects borrowers filing multiple applications. Similar factors could have affected the spike in purchase applications and do not necessarily translate into higher levels of completed home sales. That said, this data may be reflected in data for new home sales for November which are reported on the basis on contracts, not closings.
A continued increase in mortgage demand notwithstanding, data for the upcoming week has the potential to be sobering particularly at the end of the week when the Commerce Department reports retail sales for November. That report will not reflect Black Friday sales which came after the data collection period.
The most revealing report of the week could though be one day earlier when the Federal Reserve releases quarterly Flow of Funds data, a most comprehensive look at household, corporate and government balance sheets. The key numbers to watch -- though they may be downers -- will be the updated tabulation of household net worth and value of stock investments and retirement plans.
Mark Lieberman is the senior economist for the Fox Business Network. Prior to joining FOX, he served as first vice president and manager of economic analysis and research at Washington Mutual in New York. Before that, he served as senior vice president at Dime Savings Bank of New York (which was later acquired by Washington Mutual), where he specialized in credit and risk management. He is a member of the Executive Committee of the New York Association for Business Economics. He has a degree in Economics from the Wharton School of the University of Pennsylvania.
Monday, December 8No Data ReleasesFederal Reserve Governor Randall S. Kroszner speaks on Assessing the Potential for Instability in Financial Markets at the “Risk Minds 2008 Global Risk Regulation Summit” in SwitzerlandFederal Reserve Vice Chairman Donald L. Kohn participates in a panel discussion on Restoring Financial Intermediation by Banks: The Role of Regulator at the 3rd Annual Office of Thrift Supervision Housing Forum in WashingtonTuesday, December 9Small Business Optimism Index (Nov)October actual: 92.9, UP 1.8No November consensusJob Openings and Labor Turnover Survey (Oct)OpeningsSeptember actual: 3,254,000 DOWN 121,000No October consensusHiresSeptember actual: 4,364,000 UP 301,000No October consensusSeparationsSeptember actual: 4,053,000 DOWN 354,000No October consensusPending Home Sales Index (Oct)September actual: 89.2 DOWN 4.3October consensus: 87.5Wednesday, December 10MBA Application Index (Week ended: December 5)Week Ended November 28: 857.7 UP 112.1%Four-week moving average: 425.9 UP 2.3%No November 28 consensusWholesale Inventories and Sales (Oct)September actual: DOWN 0.1%October consensus: DOWN 0.2%SalesSeptember actual: DOWN 1.5%October consensus: DOWN 1.0%Treasury Budget (Nov)October actual: DEFICIT $237.2 billionNovember consensus: DEFICIT $189.4 billionThursday, December 11Import Price Index (Nov)October actual: DOWN 4.7%November consensus: DOWN 4.6%Balance of Payments (Oct)September actual: DEFICIT $56.5 billionOctober consensus: DEFICIT $54.2 billionUnemployment Insurance Claims (Week Ended December 6)November 29 Actual: 509,000 DOWN 21,000December 6 Consensus: 540,000Four-week moving average: 524,500 UP 6,250No December 6 consensusFlow of Funds (3Q)Household Net Worth2Q actual: DOWN 0.8% Q-Q, DOWN 3.5% Y-YNo 3Q consensusFriday, December 12Retail sales (Nov)TotalOctober actual: DOWN 2.8%November consensus: DOWN 1.0%Ex-autoOctober actual: DOWN 2.2%November consensus: DOWN 1.2%Producer Price Index (Nov / Y-Y Ch)TotalOctober actual: DOWN 2.8% / 5.2%November consensus: DOWN 1.9% / 0.8%CoreOctober actual: UP 0.4% / 4.4%November consensus: UP 0.2% / 4.3%University of Michigan Consumer Sentiment (Dec Preliminary)November final: 55.3December consensus: 55.0Business Inventories and Sales (Oct)InventoriesSeptember actual: DOWN 0.2%October consensus: DOWN 0.2%SalesSeptember actual: DOWN 2.0%October consensus: DOWN 1.0%
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Home loan troubles break records again
More Grim Retail Data Ahead Next Week
Seasonal jobs outlook is dim
