Today, the U.S. Department of Labor released "The Employment Situation" for May 2008. The unemployment rate rose from 5.0% in the previous month to 5.5% in May 2008. The unemployment rate has now risen 1% from a year ago. Since 1948, the unemployment rate has never risen by more than 0.5% within a 12 month period without entering a recession. The unemployment rate rose by that much in just one month and double that amount in a year. The market had been getting complacent about the possibility of a recession. The rapid jump in the unemployment rate brings the recession concerns right back to the forefront. The unemployment rate usually peaks right after the end of a recession.
Nonfarm Payrolls declined by 49,000 in the month of May and have declined for five months in a row with a total reduction of jobs numbering 324,000. For the last 10 years the economy has added on average 107,000 jobs a month so the real deficit is now over 800,000 jobs for the year. However, the losses accumulated so far are minor compared to the total usually lost in a recession. In the recession of 1990-91 a total of 1.621 million jobs were eliminated over an eleven month span. From 2001 to 2003 2.708 million jobs were eliminated over a 30 month span.
Yesterday, the U.S. Department of Labor also released the weekly figures for Unemployment Claims. The 4-week average of Initial Claims dropped slightly from the previous week's average of 371,250 to 368,500. Initial Claims peaked at the beginning of April at 376,500.
On the other hand, Continued Claims has been consistently rising and the 4-week average is now at 3,085,750. This shows that the job market is softening. Those that are laid off are having a harder time finding a replacement job.
In the second half of the year there will also be increased job cutbacks at local and state governments. The New York Times had a recent article discussing this:
State and city governments have yet to shrink the economy; indeed, they have even managed to prop it up. They have quietly maintained their spending at pre-crisis levels even as they warn of numerous cutbacks forced on them by declining tax revenues. The cutbacks, however, are written into budgets for a fiscal year that begins on July 1, a month away. In the meantime the states and cities, often drawing on rainy-day savings, have carried their share of the load for the national economy.
That share is gigantic. At $1.8 trillion annually in a $14 trillion economy, the states and municipalities spend almost twice as much as the federal government, including the cost of the Iraq war. When librarians, lifeguards, teachers, transit workers, road repair crews and health care workers disappear, or airport and school construction is halted, the economy trembles. None of that, or very little, has happened so far, not even in California, despite a significant decline in tax revenue.
This economic downturn is being led by the housing crisis which is intensifying and the employment situation is worsening with it.
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