The Guest Blog

Crescenzi: Watching the 'Dark' Jobs Numbers

Jobless claims decreased 4k to 481k in the week ended November 1st, holding close to the recent high of 499k, which was set in the week ended September 26th when claims were at their highest since September 2001. Excepting that month, and an anomalous spike that occurred in July 1992, claims in September were at their highest since March 1991. Continuing claims increased 122k to 3.843 million, the most since February 1983.

The current level of claims is consistent with monthly job losses of much greater than the 84k average seen thus far this year. Job losses are now likely to run around 150k to 200k per month, with a few whopping declines now and then. Tomorrow's payroll figure, which will be for the month of October, is expected to show a decrease of 200k, although whispers are probably closer to 250k or more. Expectations on employment are now for much more weakness than a few months ago when forecasts tended to hover around 75k, so it can be said that the degree of preparedness for bad news has reached new heights.

As I said, jobless claims have trended up in ways that suggest monthly payroll losses have accelerated from the 84k pace seen in the first nine months of this year. Claims had trended around 370k per week until the end of July, which means that recent levels of about 480k per week represent a marked change, a change substantial enough to more than double the size of monthly job losses.

As I've said since August, the spike in jobless claims suggests that the U.S. economy has entered a dark period, which is likely to be marked by increased joblessness. The data reinforce the idea that the U.S. economy will contract in the fourth quarter.

The claims figure among many other factors will help investors come to terms with the idea that bad news is on the way, and after between one and three plunges in the monthly payroll statistic, investors could become numb to the notion of much weaker economic activity.

In past recessions, investors eventually ignored bad employment data, having been numbed to the data by previous data and plentiful evidence of impending doom. This means that the bottoming process is closer than before because in the weeks and months to come we will be able to more confidently say that much worse economic conditions are already factored into the financial markets. That said, in assessing whether the worst news has been discounted, investors will have to grapple with whether the downturn could deepen or become more protracted than normal as a result of the credit crisis, therefore requiring more patience than usual in proclaiming that the worst is already discounted. This is the way events have been playing out of late.

The next step for the markets is to determine the depth and duration of the economic downturn. Once this happens, investors in riskier assets such as equities and corporate bonds will look over the valley and ignore bad news, and riskier assets will post sustainable rallies. Not now, but the time will be at hand when the deterioration in the economy stops. This hasn't happened yet—economic data continue to worsen. Data need not get better to spark a rally, they need only stop getting worse.

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Tony Crescenzi

Tony Crescenzi is the Chief Bond Market Strategist at Miller Tabak + Co., LLC where he advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. Crescenzi makes regular appearances on financial television stations such as CNBC and Bloomberg, and is frequently quoted across the news media. He is also the author of the forthcoming book, "Investing from the Top Down," "The Strategic Bond Investor," and co-author of the 1200-page book "The Money Market."Crescenzi is a contributor to"