[This isn't a typical radio commentary post. The broadcast version included material on the UAW's role in the Chrysler deal drawn from earlier posts on this site. And the bits about the April employment report were written just for LBO News, since it came out about 15 hours after the show aired. The show itself was a fundraiser with no original content, so it won't be posted to the radio archives. But please do contribute to WBAI if you can (specifying "Behind the News" as your favorite show!). The station is in desperate straits, but recent managerial interventions by the Pacifica national authorities are a cause for serious hope. There should be some new radio material for the archive next week, and the week after that, WBAI will still be fundraising, but I'll do a new, KPFA-only show.]
claims, leading indicators
First-time claims for unemployment insurance continue to drift lower, as they’ve been doing for the last six weeks or so. Last week, the number of people filing for jobless benefits fell a sharp 34,000 to 601,000. 601,000 is still a very high number, so it’s not time to strike up “happy days are here again.” Still, the downtrend is a bit of good news in a landscape that’s been largely free of such.
But the number of people continuing to receive unemployment benefits rose by 56,000 to 6.4 million. That’s doubled over the last year, and is up by a third in just the last three months. That’s a dizzying rate of increase to a very high level-not an all-time record as a percentage of the labor force, but still very high. As I’ve been saying here for a couple of weeks, this combination suggests to me that while the pace of job loss is slowing, hiring remains in the doldrums.
Leading indicators are presenting a mixed picture. The weekly leading index from the Economic Cycles Research Institute, which tends to lead changes in the broad economy by three to six months, continues to look a little brighter-which basically means slighly less negative. Its recent behavior suggest that the economy might start bottoming out sometime this fall. But, and this is a very big but, the Conference Board’s leading index for the job market is still sinking, though at a slightly slower rate than in recent months. I see no reason to change my long-standing prediction that the abstraction known as the economy, as measured by GDP, will bottom out first, while the job market limps along for many months more.
Leaving aside all this micro-wonkery, what does history suggest lies ahead of us? In its latest World Economic Outlook, the IMF takes an extended look at the history of recessions—122 of them in 21 rich countries over the last 49 years—for a guide to what we might expect from this one. The news isn’t encouraging.
The Fund’s central conclusion is that recessions with heavy financial sector involvement are deeper and longer than those with none, and are followed by weaker recoveries. And recessions that are globally synchronized are deeper and longer than those that aren’t, and are followed by weaker recoveries. Since this is both finance-centered and global, this is not good news. Though there weren’t many such double-barrelled recessions in the IMF’s database, the ones that are suggest we’re not near the end of this one yet. Maybe near in time, but not in depth. The average decline in GDP in these downturns is about 5%, and we’re only halfway there so far. That would mean that the unemployment rate is likely to top out around 12%—well above April’s 8.9%.
Speaking of which, how about those stress tests? The government has been running simulations of what would happen to our biggest banks should the recession take what they call a nasty turn—with unemployment rising to just over 10%, and the economy contracting this year by a bit over 3%, and not growing much at all next year. That’s hardly a worst-case scenario; from what I’ve just been saying, it looks highly likely, and maybe even on the bright side. To me, these stress tests, which have been reporting that some banks need to raise some capital, but not impossibly eye-popping amounts, are designed to reassure. That is, Washington’s aim is to restore confidence in the financial system before restoring the financial system to actual health.
And while all eyes have been focused on the 19 big banks that are the subjects of these stress tests, what about the other 7,000+ banks the FDIC covers? A new analysis of their state by Institutional Risk Analytics shows a sharp deterioration in the state of many of them in the first quarter of 2009, some to frightful levels. But this is being overlooked in all the attention paid to the big names.
April employment: somewhat less sucky
April’s headline job loss of 539,000 was actually about 100,000 less than Wall Street expected, so it qualifies as good news. But, before we get carried away on a wave of green shootiness, remember that a loss of over half a million jobs is still deeply recessionary—only less deeply so than in recent months.
The private sector lost 611,000 jobs—an improvement over the previous three months’ average of -710,000. Of course, that improvement was from a horrendous number to a merely awful number, but you take encouragement where you find it. Within the private sector, construction and manufacturing continued to bleed heavily, and private services took some major hits. There’s no sign of the stimulus cash yet in heavy and civil construction, where it should be showing up.
Average hourly earnings rose just 0.1% for the month, the smallest increase in almost three years. The yearly gain in average hourly wages is the weakest in several years.
Those figures come from a survey of employers. The corresponding survey of households also looks a little better than it has in recent months. Household measures of employment were steady, or even up slightly. The number working part time against their preference because that’s all they could find fell by 116,000, its first real decline in a year and a half. The share of the adult population working, the employment/population ratio, was unchanged, after almost a year of steady declines. The good news stops there, though: the unemployment rate rose 0.4 point to 8.9%, the highest level since September 1983. The broad U-6 rate, which adds unwilling part-timers and labor force dropouts, rose “just” 0.2 point to 15.8%. But that’s a lot less than the average monthly increase of 0.7 point in the previous six months.
The recession is hardly over. But this report suggests that maybe we can start talking about the beginning of the beginning of the end. Or maybe the beginning of the beginning of the beginning. Maybe.