Farrell: The Loss Of A Single Job Is A Tragedy

Unemployment is a scary thought.

No income, no benefits, emotional angst and the fear that the future isn't going to be better. The loss of 491,000 jobs as estimated by Automatic Data Processingon Wednesday is staggering. But it has to be looked upon as a statistic, not as a collection of personal tragedies. It's the same as a surgeon looking upon a patient as a medical issue. If you can't, dealing with the enormity would overwhelm anyone. That's how the estimated job loss can be looked upon not as a collection of personal tragedies, but rather as good news.

It's "good news" in that there was a fear that it would be so much worse. The ADP survey doesn't really count though since the Bureau of Labor Statisticswill announce the official tally Friday. The estimates are for a loss of some 600,000 jobs and an unemployment rate of 9%. There is hope that the number might be more like the ADP total and that would be good news indeed. A number equally important in my mind will come Thursday morning when unemployment claims are announced. Claims are the best "co-incident indicator" you could be looking at right now. They are very much the "church of what's happening now."

Claims have been level to slightly down the last few weeks. The four week moving average we harp on is also turning over. Last week the four week average was 637,000 and that was down for the third week in a row since peaking in early April. This to me is the stress inducing number we need to focus on. There are enough "green shoots" in the economic data to allow us to think the recession is bottoming. The big number on Friday is really a lagging indicator that tells us where we have been. The current claims tell us where we are likely to go.

If we can get the job loss number right we can feel very good about the stock market. For all the recessions since World War II the market has rallied eleven out of eleven times for the three months following the worst job loss number, ten out of eleven times for the six months following the worst number, and nine out of eleven times for the twelve months following. As far as I can tell, the only way to guess when that number of lost jobs will peak is to focus on the trend of the four week moving total. If that can continue its downward trend we can figure the worst of the job news will be soon behind us. It'll take a long time to get better but the market will be looking through that.

The fact that the TALF - chapter three- had a healthy $11 billion spoken for, that the Treasury is having a good auction week, and that LIBOR is at a record low (and the TED spread is below 80 basis points which seemed a dream after Lehman failed and the TED was above 500 basis points) is wonderful and good. But at the end of the day all encouraging economic signs have to translate to job and income creation. I remember in the 1970's all eyes were on the weekly money supply and everything stopped when it was announced.

We should be looking at the unemployment claims the same way and hope this downward slope continues.