Unpacking the Unemployment Numbers (Morningstar)
Morningstar's perspectives on possible peak unemployment, temp employment indicators, and the alternative unemployment rate.
Pat Dorsey: Hi! I’m Pat Dorsey, Director of Equity Research at Morningstar.
Well, United States has officially 7.6%, that’s just a hair away from the maximum unemployment we reached during the recession of the early 1990s but still a far cry from the 9.5% and 10.5% rates of unemployment during the early 80s recession. With me to unpack the numbers from this morning’s release are the social director for economic analysis Bob Johnson and Vishnu Lekraj who covers the staffing company for Morningstar and so of course needs to keep a sharp eye on the unemployment numbers.
So Bob, let’s start with you. Let’s unpack the numbers a little bit. You know 7.6% sounds pretty scary but the trend is not changing too much, right?
Bob Johnson: Absolutely. Well, the trend in unemployment, we’ve gone up a little bit each month here and then 7.6 is the highest to the cycle. At the bottom of this cycle we were at lower 4.4%, so we’ve come a fair ways in that unemployment rate.
Pat Dorsey: Now, the case at the pace of losses is not accelerating. It’s only accelerating a little bit, is that right?
Bob Johnson: Right. If we tackle about payroll employment numbers, which is looking at the numbers in slightly different way, if you look in November, December, and now January, the numbers are bleak, we’ve lost about 600,000 jobs; each of those months but the trend is spiraling absolutely out of control on the upside.
Pat Dorsey: And so we’re currently in your mind on pace to peak somewhere in the eights, sort of 8.5% if we stay at this current monthly pace of job losses.
Bob Johnson: Well, that’s correct. I mean, if we go up another percent from here in unemployment rate, that means another million jobs are so lost and 500,000 or 600,000 a month, that means theoretically, we could be out of this in three or four months or we could go losing a few less for a lot longer period of time.
Pat Dorsey: Right. Now, as Bob has pointed out to me several times, unemployment tends to be a lagging indicator but temporary employment which I know you have been taking to look at tends to be more of a leading indicator because people hire those temporary employees first and fire them first, right?
Vishnu Lekraj: Right, and what have you been seeing in the temporary labor sectors an acceleration in that number and what it tends to tell us is that the moment a situation get a lost worse before it gets a lot better. Reason being, as you said, firms tend to hire temporary workers first, or hire them out of a recession first be cautious. We haven’t seen that happen yet.
Pat Dorsey: Now, there’s another statistic that I think is worth paying attention to, what they call the alternative unemployment number which includes not just people who don’t have jobs but people who aren’t working as many hours as they want, people who are what they call “part time for economic reasons”. And that number is also heading a lot higher, right?
Vishnu Lekraj: Right. That also has been accelerating over the past six months and what you can kind of take a look at it is like a shadow on employment number and that counts people who are working less hours obviously, can only get part time work and that number has been going up and people have less money to spend because they’re not working as much.
Pat Dorsey: And that number had been running I think 13.5% last month and is now about 14%?
Vishnu Lekraj: Right, 13.5% last month, now 14% which is a little bit off the pace from November to December but it’s still, you can say, from August to now, it’s been accelerating.
Pat Dorsey: And a question for both of you, would you say this is a good figure to look at in terms of kind of the slack in the economy, you might say, because it includes these people who want to be working more but the demand is not there for their output.
Bob Johnson: You know, absolutely and I think we’ve seen that number come through in a couple of different ways and I think that obviously consumers are spending as down more than if you just look at the plain consumer spending number. So this number indicates there is some more pressure on the economy than just plain raw unemployment rates may indicate which say consumer spending shouldn’t be down as much as it is.
Pat Dorsey: Exactly. Because when you know that 7.5% is bad, that it’s not dismal but then if you think about folks who want to be working 30 hours but are only working 10 hours of course that’s 20 hours of wages they’re not getting and probably not spending.
Vishnu Lekraj: Exactly. One of the figure too we can take a look at is this quench of losses in non-farm jobs and that usually signals a bottom with the un-appointed number when that acceleration hits the bottom and that hasn’t hit the bottom yet.
Pat Dorsey: So that number is still accelerating?
Vishnu Lekraj: Right. But we could see mitigating factors such as the stimulus package or other things come into play that could help that number but if the job losses stay in the pace they are, we could see a higher unemployment rate from here that could reach 9% or maybe a littler higher.
Pat Dorsey: So that would be putting us more in the camp of the early 80s recession in terms of the paying on the jobs front and sort of lessening the camp of the early 90s recession which was more of the bottom, not too far from where we are right now.
Vishnu Lekraj: Right.
Bob Johnson: Exactly.
Pat Dorsey: And last thing to think about, the losses in different parts of the economy, again picture those pretty similar really, education and health care about the only areas holding up?
Bob Johnson: Absolutely, and that’s one of the really negative things in the story this time, is we used to be able to say, “Well, a few things weren’t going and up, and yes there’s a bunch going down.” This time, pretty much everything except health care was down. Even the Government, now, we have to break it down to the federal government because some of the state business is slowing down as well, so dispersion is very poor. Almost every industry is reporting some job losses right.
Pat Dorsey: Alright. Thanks for joining me Bob. Thanks Vishnu.
Vishnu Lekraj: Thank you.
Pat Dorsey: I’m Pat Dorsey and thanks for watching.
Unpacking the Unemployment Numbers (Morningstar)
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