The labor marketis a lagging economic indicator. On initial signs of recovery firms will tend to call back laid-off workers and increase overtime before they make the commitment to increase their payrolls. By this measure, the answer to the above question is yes indeed, our glass is both half empty and half full.
For starters, the household unemployment rate unexpectedly declined to 9.4%. That was certainly welcomed and it supports the notion that our glass is filling up. On the other hand, this estimate does not include the number of workers who are “discouraged” by the prospects of finding employment and have thus far given up. To wit, the number of discouraged workers increased for a fourth straight month, up 0.4% to 796,000. That is more than double the number, 335,000, over the last 12 months. Furthermore, weekly unemployment claims, although improving of late, are still at a level that would seem to suggest the rate will again increase. In other words, we are not out of the woods, as it were, with regard for the prospects of double-digit unemployment. Looking at employment as a percent of the population, rather than as a percent of the labor force helps smooth out noise created by the accounting of discouraged workers. In this vein the employment-to-population ratio dropped to 59.4% last month (see chart in today’s issue of The Schork Report). This ratio has declined by 3.3 points since the start of the recession in December 2007 is at the lowest level since April 1984.
Therefore, while July’s 0.1 point drop in the unemployment rate is a nice sign, the rate is still at one of the highest levels in 25 years, in other words, from this perspective our glass is half empty.
On the other hand, the establishment data showed a reduction of only 247,000 in July… and the loss in jobs for May was revised lower from 322,000 to 303,000, and the decline for June was revised from 467,000 to 443,000. This is a much more reliable indicator. The July report was the nineteenth straight decline, but it was well below expectations and the smallest since August 2008. Thus, while you cannot say that the loss of a quarter-million jobs is a good thing, it’s not, you can say – think second derivative – the acceleration to the downward slope of the employment picture is lessening. But it is still negative.
The number of hours worked edged up by 0.1 hour, from what was the lowest low since records began in 1966, to 33.1 hours. This is an important indicator, whereas the unemployment rate and payroll data are lagging indicators, the hours worked data is more of a coincident indicator. As noted above, if demand has actually increased, we would expect the workweek to increase as well. It did, albeit marginally. Thus, here our glass is half full.
Factory overtime was unchanged at 2.9 hours.
In this vein, apropos the extant lowering of refinery utilization rates, hours worked in the petroleum and coal sectors plunged by 0.6 hours to 42.7 hours. That was 3.3 fewer hours compared with July 2008.
Average hourly earnings rose 3 cents or 0.2% to $18.56. Over the last 12 months these earnings have increased by 2½%, while average weekly earnings have risen by only 1% due to declines in the average workweek. Bottom line, payrolls have now fallen by a record 19 straight months. That is the longest such streak since the BLS started keeping records in 1939. So far, 6.68 million Americans have lost their job in this recession. That too is the largest amount since the Great Depression. What’s more, of the long-term unemployed, 1 in 3 were jobless for 27 weeks or more.
The smaller than expected reduction in payrolls and the unexpected decline in the unemployment rate suggest the slope of the curve is approaching zero, i.e. the recession is bottoming – the glass is half full, but the economy is still shedding jobs and unemployment claims are unacceptable, i.e. the recovery has yet to begun – the glass is half empty.
Therefore, here at The Schork Report, we do not think Friday’s jobs reportsupports a run to $75 crude oil, but, the technicals tell a different story.
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Stephen Schork is the Editor of, and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.