The upcoming release of the
September non-farm payrolls report by the Bureau of Labor Statistics will not
provide much comfort to the market or the public. Our forecast implies that
payrolls will decline -105K and that the rate of unemployment will increase
to 6.2% for the month. The strike at Boeing and the displacement of workers
in the Southeast due to the twin hurricanes that hit the area during the
sampling period should send the headline estimate of job losses above the
recent trend. The risk for the report is to the downside and we do expect
that the rate of job destruction will increase in the coming months.
Thus far 650K jobs have been
lost during the year. The troubles in the housing sector and the now yearlong
crisis in the credit market have begun to spillover into the broader economy.
We anticipate that autoworkers and individuals in the technology sector,
especially those in the work in computers may see an increase in unemployment
in September and in the coming months.
We base this forecast on the
growing evidence that that weakness in the manufacturing and goods producing
sector has spilled over into the once potent service sector. We anticipate
that close to half of all losses will occur in the manufacturing sector with
the service sector seeing a fourth straight month of declines, in addition the
weakness in the goods producing sector. Outside of the positive contributions
from the government and the healthcare sector, the labor picture is in the
process of moving in a decisively negative direction.
The deterioration in the
unemployment picture is equally bleak. The sharp jump in the rate of
unemployment in August was characterized by an increase in the duration of
unemployment of 27 weeks or longer. Over the past year the number of
unemployed individuals has increased by 2.2 million, while the unemployment
rate jumped 1.4% over that same period, 1.3% over the past six months and
0.4% in August alone. During the post war period, each time the rate of
unemployment has increased by 1.0% during a twelve-month period the economy
proved each time to be in recession. Based on the most recent data we have
updated our forecast on the rate of unemployment to 6.9% by mid 2009.
Looking forward, the September
jobs report will not capture the recent intensification of the credit market
and the complete seizing up of the short-term market for money. Firms that
rely on the credit markets to roll over short-term debt and meet bi-monthly
payrolls may find it increasingly difficult to do so. If the current
financial crisis turns into an economic event, the market should ready itself
to observe a far sharper dislocation in the workforce than is currently
assumed. Thus, if the credit markets remain frozen well into October, there
is a definitive risk that culling of the labor force will pick up beyond our
provisional expectation of losses through the end of the year in the job
sector of up to 150k per month.
