David Rosenberg had some great thoughts on today’s deflationary empoyment report:
Today’s employment report had deflation thumbprints all over it. And you don’t have to take my word for it – have a read of San Francisco Fed President Janet Yellen’s speech on June 30th when she dared to utter the “D” word. And that was before today’s payroll release which contained disturbing signs of weakness on many fronts.
For those that missed it: Yellen said the predominant risk was that inflation would remain low for an extended period of time and will be “be too low, not too high, over the next several years.”
The headline came in at -467k compared with -350k consensus and the back revisions were negligible (+8k). At no time in the 1990 or 2001 recessions did we ever come close to seeing such a detonating jobs figure, not even at the depths of those downturns, and yet we have a whole industry of ‘green shoot’ advocates today telling us that the recovery has already arrived. As always, the devil was in the details. In almost every industry, job losses were deeper in June than they were in May. The diffusion index fell to 28.6 from 31, which means that nearly three-quarters of the corporate sector is still in the process of shedding jobs. The Household Survey showed a 374k job decline, and all centered in full-time jobs. In fact, we have lost a record 9 million full-time jobs this cycle, more than triple what is normal in the context of a post-WWII recession, with over 2 million pushed onto part-time work (and the number of people now working part-time because they have no other choice due to the weak economy has more than doubled).
This in turn has take the total hours worked in the private sector down to a new record low of 33 hours from 33.1 hours in May – in fact, what this means is that if companies had kept hours worked at May’s levels, then to achieve the same labour input that they achieved would have required a 800,000 job slice! Just to put the entire labour market picture into a certain perspective.
When we say that deflation has gripped the labour market, we are not exaggerating. Average weekly earnings – the proxy for wage-based income – fell 0.3% in June and have been flat or down in three of the past four months. During this interval, they have deflated at a 1.6% annual rate – versus a +1.8% trend a year ago and +5.2% two years ago.
Judging by the lingering – indeed, accelerating – weakness in labour demand, these deflationary pressures in the labour market in general and wages in particular can be expected to persist. The implications for consumer spending once the fiscal stimulus subsides in the second half of the year are clearly negative, with similar implications for corporate profits and the equity market which de facto priced in a V-shaped earnings recovery. The average duration of unemployment gapped up 2 weeks to 24.5 weeks – both the increase and the level reached are new record highs. The number of unemployed people that have been looking for a job with futility for the past six months rose 433k to a new all-time high of 4.4 million. Almost one-in-three of the ranks of the unemployed have been looking for work now for the past six months and still can’t find one. It is remarkable that anyone can be serious about “green shoots” with this labour market backdrop.
While the unemployment rate inched up to 9.5% from 9.4% in May, the broader U-6 measure that includes all forms of job market slack rose to a new high of 16.5% from 16.4%. Ponder that number for a minute — one in six Americans that are able and willing to work are either unemployed or underemployed at the moment. That is certainly cause for pause, especially for the green shooters and inflation-phobes among us.
Great stuff as always from one of the best analysts off Wall Street.
Source: Gluskin Sheff