Grizzly Unemployment News Keeps Us Bearish

The loss of 651,000 US jobs was right in line with expectations, but the revisions to the previous month’s was not. The January number was revised to a loss of 655,000 jobs from an originally reported loss of 598,000 jobs. The December figures were revised down again as well, to a loss of 681,000 from an estimate of 577,000 in the January employment report and 524,000 when first reported.

For those determined to see the glass as half full, one could say that there is now a downward trend in job losses, since based on current estimates, the loss in February is less than the loss in January, which was in turn less than that in December. Of course, the February numbers have not been revised yet, and based on recent history, it does not seem like they will get much better when the second stab at them is taken next month.

The unemployment rate jumped to 8.1%, the highest number since we were coming out of the 1982-83 downturn in June 1983. This is up from 7.6% in January and up from 5.2% a year ago.

As the first chart shows, (larger versions available here) the pace of job losses, when adjusted for the size of the population, is the worst since everyone liked Ike. Back then we were a much more manufacturing-oriented economy, and tended to have much bigger swings in employment, with people quickly laid off, but then quickly rehired. The last two recessions were noteworthy for their shallow depth, but long duration in terms of employment.

This time around, it looks like we will have the worst of both worlds, both long and deep. It seems very likely to me that unemployment will exceed 9.0% by the end of this year, and might even hit double digits in 2010. We will probably not get down to an unemployment rate of below 6.0 until late 2011 or 2012.

The 8.1% level is what is known as U-3 unemployment, which is the narrowest measure. A broader gauge, which includes people who are marginally attached to the workforce, or working only part time since they can’t get full time work (U-6 unemployment) rose to a record high 14.8% from 13.9% in January and 9.5% a year ago.

The percentage of the population that is employed fell to 60.3%, down from 60.5% last month and 62.7% a year ago. That is the smallest proportion of people working in 22 years, and in the mid-1980’s women were still just entering the labor force. The peak of that measure was in April of 2000, when 64.7% of Americans were working.

There are now 12.5 million people out of work (U-3), and increase of 5.0 million over the last year. There were 2.1 million people marginally attached the work force in February, an increase of 466,000 over the last year. These are the so-called “discouraged workers.” The involuntary part-timers totaled 8.6 million, an increase of 787,000 in the month, and up 3.7 million over the last year.

The year-over-year percent change in employment is now at -3.0%, which as shown in the second chart (also available in larger size here) is the worst we have seen since 1960. Job losses were extremely widespread in February, with a loss of 276,000 goods producing jobs, including 104,000 in construction (1.55%) and 168,000 in manufacturing (1.33%).

The service sector lost 375,000 jobs in the month, or 0.33% of all jobs in that sector. Within services, the hardest hit area was in professional and business services which lost 180,000 jobs or 1.05%. Once again, the only areas adding jobs were in Education and Health (up 26,000) and the government, which added 9,000 jobs.

The duration of unemployment is also increasing, which is significant. The median duration of unemployment jumped to 11.0 weeks from 10.6 weeks in January and 8.4 weeks a year ago. Most people can handle being out of work for a few weeks, but when it stretches into month and months, it is a much bigger hardship.

While the stimulus bill did extend unemployment benefits, usually they run out after 27 weeks, so that is usually a very significant point. People will first cut their spending when they become unemployed, but then have to cut it even more dramatically if the unemployment checks run out.

The number of long-term unemployed rose to 2.917 million from 2.647 million in January, and is more than twice the 1.297 level of a year ago.

When you are out of work, it is hard to pay your mortgage, and if the house is worth less than you owe on it your motivation to do so is not very high. The deteriorating employment picture will put yet more pressure on the banks, particularly ones with large exposure to mortgages like Bank of America (BAC), PNC Financial (PNC) and Wells Fargo & Co. (WFC).

The unemployed are also less likely to spend that free time of theirs shopping, and any shopping they do will be at deep discount stores, not at department stores like Macy’s (M) or J.C. Penney’s (JCP). Avoid both groups.

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