Laboring Labor Market - Job Losses Mounting

Today's Employment Situation Report and weekly Initial Jobless Claims offered more evidence that the labor market is laboring...

Lack of surprise left markets relatively unfazed on Thursday. Nevertheless, the flood of data released over the last two days offers no reason to take comfort. In fact, the regular monthly parade of labor market reports illustrated in flamboyant fashion the deterioration of our economy. While employment data typically proves a lagging economic indicator, we've really only just begun seeing the real bad, bad news. Also, some recessions and bear markets last longer than others, and so this typically lagging indicator may yet prove useful predictor.

Employment Situation

Released today, June's Employment Situation Report showed no change in the unemployment rate, after a huge jump last month. At 5.5%, however, the rate is becoming a troubling thorn in the side of even the most optimistic of economists, especially after the degree of change that occurred in May. Despite that large 0.5% jump in the rate, in recent times, we've noticed that the this data point seems to take some time to digest significant increases. So, we take no comfort in the news that unemployment held steady in June. Anecdotal evidence also abounds, leaving us even less reason for peace of mind.

Within the Employment Situation Report itself, we saw that Nonfarm payrolls declined another 62,000 in June, taking the total for the year to 438K. So make no mistake about it, our economy is still shedding jobs. "Well then Greek," you must be asking, "why did the unemployment rate stick." (Talking to myself is a clear sign I need to see more daylight, and mix something other than potatoes into my diet...)

Well, (answering myself is even worse) as we outlined last time (speaking in plural is also very troublesome), Americans are not of the lazy sort. When they lose their jobs, and realize they still have a family to feed and bills to pay, they go out and get another job, or start a business. So, the number of Americans working part-time for economic reasons, meaning they lost their job or had hours cut back, has increased by 1.1 million over the past 12 months. Now, we should note this number was unchanged from May to June, so we still have 62K jobless to account for. Newly jobless stuck at about the same number as well, and those considered out of the workforce had not changed much from a year ago either.

The Ambitious Lot

We suspect that the number of Americans surviving on savings, or attempting to make their long-coveted independent dreams come true, you know, guys like me, are absorbing the excess job loss at the moment. There is some evidence of this within ADP's data. The ADP Private Employment Report, released yesterday, showed abundant job creation in the small business sector, with employment rising by 7,000. This contrasted with declines in large and medium-sized businesses. However, it's a bad time to start a business, and so we expect significant personal wealth to be destroyed as a result, and lost forever as many of these businesses fail.

More Anecdotal Evidence of Laboring Labor

Yesterday, the Challenger, Gray & Christmas Job Cuts Report showed that planned corporate layoffs increased by 82K. Layoffs were led by financial services firms, and you should not be surprised to hear that. Massive workforce reductions are in process across Wall Street, and reaching to regional banks now as well. "The Greek" himself has seen a couple friends lose their jobs or face that threat at Citigroup (NYSE: C) and Merrill Lynch (NYSE: MER). We're sorry to say, a few good friends are now gone from Bear Stearns positions since the JP Morgan (NYSE: JPM), we'll be nice and say, "acquisition." We have more than a few friends at Morgan Stanley (NYSE: MS), Deutsche Bank (NYSE: DB), Goldman Sachs (NYSE: GS) and smaller firms as well. We wish you all the best folks. The point is, times is tough downtown.

But It Ain't Just the Financial Sector Anymore

The trouble is no longer isolated to the financial sector. Domestic demand is not through softening yet, and what seems like infinitely rising energy, gasoline, food and everything prices are sure to crimp domestic spending through the year, or longer.

Economic stimulus is currently serving its purpose and keeping spending artificially aloft. But, when the last of those checks goes out in mid-July, it should not take longer than the end of the month for that beneficial impact to disappear. At that point, the voice of Barrack Obama, and his calls for a second round of stimulus, should grow louder.

Monster Employment Index and ADP Private Employment Report

Besides the ESR, we had plenty more evidence of trouble this week. The Monster Employment Index (Nasdaq: MNST), a measure of online job opportunities, posted a 3 point decline in June. ADP's Private Employment Report, showed a loss of 79K jobs through the month. Today's Weekly Initial Jobless Claims Report noted a jump to 404K.

ADP was consistent with the ESR, both showing ongoing weakness in construction, manufacturing and financial sectors of the economy. According to ADP, the service sector saw only a 3K loss in June, versus a 76K loss at goods-producing businesses. Well, that may all be about to change.

Today's ISM Nonmanufacturing Report surprised economists who were looking for ongoing broader immunity for the service sector. By broader immunity, we mean excluding the financial services sector of course, where everyone comes to work these days expecting it to be their last. Well, "broader immunity" no longer applies. ISM's Nonmanufacturing Composite Index fell below 50.0, or into contraction territory. So, America is spending less, and will likely spend even less if prices do not moderate and the financial system cannot recover to allow expansion (excluding population growth effects) again.

Coming Weakness

This morning on Bloomberg Radio, we heard an economist whose name now escapes us point out yet another area of coming weakness. The cost of capital in the municipal space has increased significantly due to financial market turmoil. It now takes a lot more yield to raise money, and municipalities are likely doing less of it as a result. This means, cops, firemen, etc. will also lose jobs as state and local budgets are reweighed.

We've already well outlined what we expect to happen within the saturated retail and restaurant sectors as Americans stop spending in earnest as early as August or September. So, while the market held up relatively well today on the first look at the data, we expect that with more time smart money will prove true and lead us even lower.

We want to give a shout out to the producers of SA KA LA, a workshop production of the Lee Strasberg Theatre and Film Institute. Tonight is the last showing, starting at 7:30 at the Marilyn Monroe Theatre, at 115 East 15th Street in Manhattan. Yours truly will be in attendance. Call 212-533-5500 for reservation. Sending our best wishes, to "Greek" friend and actor, Pietro Rabassi. Break a leg!

Article also interests AMEX: DIA, AMEX: SPY, Nasdaq: QQQQ, AMEX: DOG, AMEX: SDS, AMEX: QLD, NYSE: NYX. Please see our disclosure at the Wall Street Greek website.