Unemployment Rate Jumps

By "The Greek"

By now you've seen the unemployment rate headline, "Unemployment Jumps to 5.7%!" Or maybe you read, "Unemployment Hits Four-Year High!" Whatever the case, we expect you were unfazed as you packed up the car for your drive to wherever you hang on the weekends. Hey, we know from our email list, for some of you that may be Boca, while for others, the Jersey City public pool (see you there). In any event, the employment data that closed out the week, including several other reports, deserve your attention.


Employment Situation

The Granddaddy of monthly employment reports, Employment Situation, offers investors and Fed watchers the best cue on how labor is shaping up each month. In this case, labor is shipping out... yeah, to you know where... that place where some sporting shin-dig is about to start.

Unemployment moved higher two-tenths of a percentage point in July, to 5.7%, from 5.5% in June. Way back in April, the jobless rate stood at a healthy 5.0%, and the President's favorite economic line always included mention of it. So, how bad is it going to get? Are cheese and bread lines in our future? Actually, we expect never again, since someone really bright invented food stamps. We'll get to where we think the trouble will peak in a minute. Let's review the entire group of reports first, or at least three of them after editing...

Nonfarm payrolls fell by 51,000 in July, which compared to the consensus view for a loss of 72K jobs. Woo Hoo! Hey, do I owe Washington Mutual (NYSE: WM) money for using that terminology? Before we celebrate, let's not get lost in the delta, though the Greek is clearly a fan of delta and not just because it's a Greek letter. Change drives stocks, and rate of change or change in direction, even more so. But, in this case, we think it's the absolute figure that matters, and the fact that it's still pointing to blood letting in the labor market. To gauge trend, June saw a loss of 62,000 jobs, while May fell by 49K. So we're right there in the same neighborhood. We have to go all the way back to December before we see an increase.

Part-Time Jobless

We know Barron's Alan Abelson likes to harp on the mystery of the recently strong positive impact of the birth/death rate on the report's take on labor health. We agree with Alan in his implication that the Feds may be fudging the numbers a bit. However, there's absolutely no doubt that the unemployment rate is positively impacted by American work ethic. Every part-time Joe you know who is working less than they would like, is also not counted as unemployed. So all those folks who use to work for Ford (NYSE: F) and General Motors (NYSE: GM), and are now panning for gold on the banks of the Detroit River, are not counted here. This group, categorized under "those working part-time for economic reasons" increased by 308,000 in July (that's big), to 5.7 million in total. That's more than the population of the Republic of Georgia! - or Greek diners in New York City! This number has risen by 1.4 million over the past 12 months alone.

Here's the problem. First, a lot of these jobs are seasonal, summer gigs at amusements parks and on the boardwalk etc. August has just begun, meaning there's a month's worth of sustenance left here. What happens then... Secondly, part-time jobs are also going to decrease in total, as retail/restaurant and other consumer sensitive sectors that tailor to the discretionary dollar-spend scale down. When that happens, we could see a sharper jump in unemployment than May's four-tenths of a point increase.

Anecdotal Evidence from Other Reports

The Monster Employment Index, of course produced by Monster Worldwide (Nasdaq: MNST), yesterday sank to the lowest point it has reached in the past 12 months. It shed six points in July in fact (that's big again), in moving to a level of 157. Both the Monster measure and the Labor Department's take show intensified weakness in construction and manufacturing. I guess there won't be any home builders left soon. The government says information services and employment services (read NYSE: RHI, NYSE: MAN) are also soft, while Monster points to finance, insurance and real estate as other areas of trouble. Generally speaking, there is broad ranging attrition in the labor force, across most industries and regions of the nation.

Jobless Jolt

This week's initial jobless claim figure was downright scary! New filers amounted to 448,000 last week (that's really big). Guess where most of the insured unemployed are located... Michigan ranks second and New Jersey third. Surprise... Surprise... Michigan, the hub of the auto industry and New Jersey, supporting much of the nation's financial services. For those of you who have never crossed the Mississippi, Jersey cheaper living than NYC, and so drives the nation's most massive commute. In fact, the Northeast Corridor is the most heavily trafficked train route in the country.

Anywho, the labor market looks like she's about two days into a four day illness, in my view. But, don't forget, this is a lagging indicator, even though I heard some bozo call it a leading indicator this morning on Bloomberg (I've decided it's okay to call people bozo's if I don't name them- how do you think God feels about that? Comment below...). Here's why... First your business declines and then you fire people, or restructure your workforce to a nice group of eager, young college grads, who by the way, are cheaper and can be more easily pushed around...

In conclusion, I think it's time to bunker down if you are in the retail space, because sooner or later, that government gift will be played out. Unemployment should trend ugly, above 6.0% without any trouble and maybe even worse if Iran has some nasty consequences... which I see but that the market has not discounted as yet. We'll save that bit for an upcoming piece...

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