Unemployment starts to act like we are in a recession

The U.S. Department of Labor released “The Employment Situation: March 2008” today. The Unemployment rate rose from 4.8% to 5.1%. Nonfarm payroll employment declined by 80,000. For the last 10 years, an average of 107,000 jobs have been added a month. Payrolls have now dropped for 3 months in a row by a total of 232,000. These 3 months of drops broke a streak of 52 straight months of payroll growth. Today, the numbers for January and February were also revised down. February was revised down by 13,000 and January was revised down by 54,000.

Last month payrolls hadn’t dropped and the unemployment rate didn’t spike up like usually happens in a recession. Today, the charts look much different with the revised figures. This second chart is the chart from last month (without this month’s revisions).

Yesterday, the U.S. Department of Labor also released the weekly figures for initial weekly unemployment claims. Claims spiked up to 407,000 from last week’s revised figure of 369,000. Initial unemployment claims are a leading indicator for the unemployment rate. The unemployment rate usually rises by over 2% during recessions.
The market has been pricing in the hope that the worst is over. However, it is looking more and more like we won’t avoid a recession and if that is true, things will probably get worse before they get better.

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