The Guest Blog

Schork Oil Outlook: Not Out of the Woods Just Yet

Stephen Schork, Editor, The Schork Report

The tenor of the economic headlines in September had something to offer for both bulls and bears. The Great Recession is over… probably. But, what about the recovery?  Is that too going to be great, as in V-shaped? We doubt it. 

Some of the news to emerge last month was encouraging, but other news was downright discouraging. On housing, the S&P/Case-Shiller Index appears to be trending higher for the first time since the second quarter 2006. However, sales of existing and new homes unexpectedly turn down… three months before the $8,000 tax credit available for first-time home buyers (part of the American Recovery and Reinvestment Act of 2009), is set to expire. 

As far as the U.S. factory economy is concerned, the ISM Manufacturing Index and Industrial Production numbers came in stronger than expected; as did reports from the New York and Philadelphia Federal Reserves. However, those upbeat reports were offset by equally disappointing numbers from the Chicago and Dallas Feds. Furthermore, Factory Orders and orders for Durable Goods turned negative.

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All in all, the latest ratio between the Conference Board’s Coincident-to-Lagging Indicators inched higher, but that was because the ratio’s denominator, which includes the average duration of unemployment, fell. Speaking of unemployment, we will segue into Friday’s jobs report; which as we all know by now, was horrendous. 

There are not too many positives you can take away from this report. To a degree, the report was exaggerated by a large 53,000 cut in government jobs, but that hardly compensates for the overall loss. After all, if we consider the labor component of the Conference Board’s Lagging Indicators (see Chart of the Day in today’s issue of ), the number of long-term unemployed, those unemployed for greater than a half-a-year, is (figuratively and literally) off-the-charts. 

The Bureau of Labor Statistic’s (BLS) household unemployment rate increased to 9.8%; but as we all know, the situation is much worse than that. For instance, the BLS reported that the civilian labor force fell by 571,000 folks, workers who are apparently discouraged by the prospects of finding a job. In other words, more than a half-a-million Americans gave up on looking for a job. Had not that occurred, the official unemployment rate would have easily surged over 10%.  Well, it did occur.

As a result, if you include these discouraged workers, who the BLS identifies as marginally attached to the workforce, along with part-time workers who would otherwise be working full-time, then the real unemployment rate is now 17%. Thus, 1 in 6 workers in the United States is either out of work or is under-worked.  In this vein, the employment-to-population ratio (which smoothes out noise created by the accounting of hereto marginalized workers) dropped to the lowest low since January 1984, 58.8%.

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Furthermore, the establishment data showed a reduction of 263,000. Even if you omit that cut of 53,000 from a bloated government teat (most of it on the State and Local level, 10,000 and 37,000, respectively), that number is huge for this point in the recession… er… recovery. Additionally, the combined loss in jobs for the months of July and August was revised higher (or is that lower?), from 492,000 to 508,000.

Wait… it gets even uglier for the acolytes of the second derivate school of economics. The number of hours worked fell back to the lowest level, 33.0 hours, since records began in 1964. That’s an ominous sign. Whereas the unemployment rate and payroll data are lagging indicators, the hours worked data is more of a coincident indicator. Thus, if those much vaunted green shoots were really sprouting, which some in the media have purportedly been seeing since February, it would then not be unreasonable to expect to see at least a glimmer by this point?

Instead, 2.7 million Americans have lost their jobs over the last seven months. Remember, the reason why the payroll data is a lagging indicator is that because on initial signs of a recovery, firms will tend to call back workers who it has laid-off and increase overtime, before it will commit to new operating expenses.

On one hand, nonfarm productivity surged as of the second quarter. The indication from this report was that firms were squeezing more output from fewer workers.  Thus, perhaps this was an indication that the velocity in layoffs was about to subside.

Indeed, that appears to have happened. In the third quarter 768,000 Americans lost their job, as opposed to 1.29 million in the second quarter. What’s more, weekly claims for unemployment insurance have dropped from a four-week average of 616,000 in June to 563,000 as of last Thursday.

On the other hand, the average workweek regressed to a record low and factory overtime fell in September. Thus, productivity surged in the second quarter, but as of the end of the third quarter the workweek has contracted and overtime is unchanged.

Thus, when Ben Bernanke tells us that the recession is “technically” over, but, “…it is still going to feel like a very weak economy for some time as many people still find their job security and their employment status is not what they wish it was…” we believe him.

In other words, the residue of this recession will linger in the psyche of the American consumer – who’s spending drives two-thirds of the U.S. economy – for quite some time to come.


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.