Posted by Brian McCullough
Sorry I’m late on this. Busy day at ResumeWriters.
I also put it off cause it’s not fun to write the following: I think today’s jobs report might signal the beginning of a tightening job market for the foreseeable future. Chances of a recession are beyond my pay grade, but I think a jobs recession is an odds-on probability now.
It’s not just the headlines: unemployment over 5%; job creation at it’s lowest level in almost 5 years. It’s also the suddenness and severity of how things are turning sour. To suddenly see unemployment go up by almost half a million in a month is sobering.
And where the jobs are being lost is key. Manufacturing jobs are down sharply, signaling that the overall economy is contracting. And for the first time, we’re seeing weakness in services. You put those two together and you have most of the employment market in this country suddenly contracting.
My point is that employment indicators have sort of been limping along for the last few months, and this report might represent the tipping point. I hope I’m wrong, but smarter economists than I seem spooked as well:
Until now soft landing optimists could dismiss other recessionary signals in the economy – a much worsening housing recession, faltering capex spending by the corporate sector, a severe liquidity and credit crunch, oil at $100, forward looking indicators of supply (ISM) showing contraction, a weakened consumer that was saving-less and debt burdened – based on the argument that as long as there was job generation the consumer would keep on spending and – with consumption being 72% of aggregate demand – a recession could be thus avoided.
Until now the US consumer had negative savings, was debt burdened and was being buffeted by many shocks: falling home values, falling home equity withdrawal, rising debt servicing given resetting ARMs, rising delinquencies on mortgages, credit cards and auto loans, falling consumer confidence, high and rising gasoline prices and, more recently, falling stock market wealth. But as long as income and jobs were generated at a satisfactory rate the optimists argued that all these shocks did not matter as the consumer would keep on consuming. But the dismal employment report today – 18K jobs created, private jobs falling by 13K and unemployment rate up to 5% from 4.7% – confirms that even job and income generation is now faltering making a recession an almost sure outcome.
As argued here before, at this point the debate is not about soft land or hard landing; rather it is about how hard the hard landing will be. Many sophisticated analysts that were in the soft landing camp are now talking about a “mild” recession in 2008, i.e. a two quarters recession in H1 followed by a recovery of growth in H2 of 2008. This author’s assessment is rather one of a more severe and painful recession – lasting at least four quarters – into most of 2008.
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