Employment Report Apocalypse

By Markos Kaminis - Economy & Financial Markets

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The build up of data heading into Friday's Employment Situation Report was ominous to say the least. Even excluding a slew of dreadful economic reports, the past week offered four key employment data points ahead of the critical Labor Department news, none of which spoke for hope. Besides this, with the cat now out of the bag on economic futility, and with the election behind us, the government seems to have little reason to fudge the numbers any longer. Thus, the clean but ugly view of the employment situation is the most likely reason behind the stock market decline that followed the election, not the Obama victory.

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The Four Horsemen

The Four Horsemen of the Apocalypse might have in fact swept over us in the form of employment data last week. Monthly reports from Challenger, Gray and Christmas, ADP Employment Services and Monster Worldwide (Nasdaq: MNST) joined the weekly Jobless Claims Report in offering a sort of end of days type message.

Weekly Initial Jobless Claims

Carrying a bow and riding a white horse, this report, offered by the Department of Labor (DOL), has readily noted an increasing flow of new unemployment claim filers over the past year. The latest reading of 481K for the week ended November 1st kept the four-week moving average hot at 477K.

States (or territories) with the highest levels of insured unemployment rates included Oregon (3.6 percent), the Virgin Islands (3.6), Michigan (3.5), Nevada (3.5) and California (3.4). The largest increases in initial claims for the week ended Oct. 25 were in Pennsylvania (+5,579), California (+4,617), Illinois (+4,314), Ohio (+3,949), and North Carolina (+3,179).

Challenger, Gray & Christmas Announced Layoffs

Anecdotal evidence in daily corporate layoff announcements has been plentiful, and born from every industry sector, save health care, mining and government. Most recently, we've heard news of new layoffs at Ford (NYSE: F), E.W. Scripps (NYSE: SSP), Fidelity Investments, GlaxoSmithKline (NYSE: GSK), Goldman Sachs (NYSE: GS), Circuit City (NYSE: CC), ArvinMeritor (NYSE: ARM), American Express (NYSE: AXP) and more. So, it should have been little surprise when Challenger noted October's announced layoffs soared to their highest levels in nearly five years.

The outplacement firm said planned job cuts jumped by 19% in October, to 112,884. The report indicated 3 out of 4 of its industry categories shed positions, as what started out in the real estate sector is now widespread. As a result, I think we all recall with contempt the early speeches by the Administration claiming the trouble was contained. We were vocal here from the start concerning Bernanke's, and especially Paulson's, cheerleading of the President.

Monster of an Employment Index

Appropriately named, Monster Worldwide's monthly index met its lowest point of the year in October. The level of 150 was a full ten points lower than September's reading, and seven points below the prior low for 2008.

The sharp drop-off in October could be attributed to economic reality, and to fear. Firms are not only laying off employees due to the harsh economic realities of the day, but also refraining from new hiring due to concern for tomorrow.

ADP Private Employment Report

The fourth horseman, ADP, provides the preeminent precursor to the monthly Labor Department data. ADP's Private Employment Report differs in that it excludes government jobs from its measurement. However accurate or inaccurate it may be, many forecasters attempt to employ the ADP data, with their own adjustment, toward getting a gauge on the DOL reading. This month's news didn't have to be accurate to offer useful guidance though. The magnitude of the reported loss in nonfarm payrolls was enough to get the message across!

According to ADP, nonfarm payrolls (read jobs) declined by a net 157,000 in October. That compared against September's revised level of 26K jobs lost. The attrition was reportedly driven by the goods-producing sector of the economy. October actually marked the 23rd consecutive decline in this segment. You see, even before we started losing these jobs to the recession, we were losing them to India and China.

The service sector shed 31K jobs in October, which was especially noteworthy because it marked the first such decline since November of 2002. The service sector drives the American economy, and so this serves as a bright red flag for the months ahead. Moreover, the entirety of economic data and corporate news last week served as fair warning to the market of what was to come on Friday, and this was likely the real reason the market dropped on Wednesday and Thursday. So don't blame Obama!

Employment Situation Report

Despite the fair warning, Friday's DOL data was staggering nonetheless. The nation shed 240K jobs, even more than the 200K that economists had forecast. What's worse is that September was also revised dramatically lower, to 284K jobs lost in that month.

While the end result would be the same, the drastic revision and noteworthy new data could be interpreted one way by the realist and another by the conspiracy theorist. The realist might look upon the unanimity of economic indicators characterizing October, and comfortably accept the enormity of this unemployment downfall. The conspiracy theorist, however, might question whether the numbers were fudged prior to the election in order to aid the Republican candidate. Barron's Alan Abelson has intimated more than once that the birth/death rate adjustment to these numbers has been deserving of suspicion. September's new sum of 284K jobs lost is a far cry from the 159K that were initially reported. How do you get it so wrong, if not on purpose?

The unemployment rate jumped to 6.5%, from 6.1% in September. Many say, and we agree, that before it's all said and done, one in ten of us could be unemployed. That's a big number no matter how you look at it, and it carries significance for consumer spending and the service sector that drives America.

Answering a glaring inconsistency, we think logical reasoning for the market's rebound on Friday can be placed with the downward movement of the two days prior. In other words, as the four horsemen road in, they offered fair warning of unemployment Armageddon, and we priced it in.


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