Employment Situation Report - Unemployment Jumps

Visit the front pages of Wall Street Greek and Market Moving News to see our current coverage of economic reports and financial markets.

By The Greek - Economy & Markets:

Today's Employment Situation Report was perhaps the most highly anticipated in history, at least until January's data is released. After the miserable news from ADP on Wednesday, and the resulting creeping higher consensus forecast for the DOL release, today's dire data was well set up. Even so, the news was still like a horror movie, in that you knew something bad was about to happen, and you got scared anyway. Economists are widely speaking of deep pain for the year ahead, and this realization has the market reevaluating its earlier excitement. Thus, shares are broadly lower today and for the week as well.

(Article interests: NYSE: RHI, NYSE: MAN, NYSE: KFY, AMEX: DIA, AMEX: SPY, Nasdaq: QQQQ, NYSE: NYX, AMEX: DOG, AMEX: SDS, AMEX: QLD, AMEX: XLF, AMEX: IWM, AMEX: TWM, AMEX: IWD, AMEX: SDK)

The Department of Labor reported a net 524K nonfarm payroll decline in December, nearly matching the recently creeping higher consensus forecast. This figure takes the infamous birth/death rate adjustment into account, so many prefer to look toward the total number of newly unemployed for a cleaner figure. Besides probably being more realistic, it makes for a better headline and presents well for the insightful analyst. A total of 632K jobs were lost in December. Thank us later for the comeback material you can use at the water cooler, where your office's annoying Mr. Know-It-All will declare 524K jobs were lost.

Either way you slice it, it's trouble. The unemployment rate jumped to 7.2%, from November's 6.8% (revised from 6.7%). Furthermore, it exceeded the consensus estimate for 7.0%, and it even topped the high-end view for 7.1%. So those who were relieved by the 524K number can now revert to holding their breath again.

A total of 11.1 million Americans are now unemployed, and another 8.0 million are considered underemployed while working part-time versus a full-time preference. This disappointed group is 3.4 million larger than it was last year.

A few hopeful economists took solace from recently lower weekly initial jobless claims results, but we attribute those to the warm-hearted effects of the holidays. You see, it's still hard for most of us to fire someone before Christmas. I myself was considering firing my assistant, Odi, who doubles as my dog, and couldn't bring myself to do it when he gave me that look.

One strategist (we missed the name) noted this morning on Bloomberg radio that another 60K jobs are already gone from the auto sector in January, and he noted his expectation for a 700K loss when this January's tally is reported on February 6th.

Retrospective consideration alone provides enough worry for the auto sector. The largest manufacturing job losses last month came in auto and auto related groups. Fabricated metals shed 28,000 jobs, while motor vehicle parts lost 21,000. Since the start of the recession, motor vehicles and parts industries have cut 17% of their workforce, and we're not through yet. Next week's auto show will likely be the lowest key such event in history, as the bailed out General Motors (NYSE: GM) and Chrysler, and the potentially in need Ford (NYSE: F), are mindful of flamboyant spending perception. After AIG's (NYSE: AIG) $500K retreat and GM's corporate jet usage, there's little patience left in the halls of Congress. This group might yet need to return to DC for another round of aid. We expect the auto show will highlight hybrid and new technology designs in concept vehicles.

I didn't realize there were still jobs to be lost in construction, but a whopping 101K more were cut in December. It's very likely that most of the recent cuts are coming in commercial construction. Similar municipal jobs may be the last to go, but their time is likewise coming if Obama's stimulus package doesn't live up to expectations. State wells are dry, and creative budgeting can only go so far before municipal workers find themselves on the unemployment line with Wall Street and Detroit. A portion of the construction job cuts may be the last few for home builders (or not!) before another wave of industry bankruptcy. New construction is at such a lull that we cannot imagine there being any excess workforce still around. In related news, KB Homes (NYSE: KBH) reported a narrowed net loss today. I guess it's a good thing when you bleed to death at a slower rate.

One economist today announced that job losses might keep increasing through the middle of 2010! Another expert wisely noted that unemployment, as terrifying as it is, is a lagging indicator. Companies are very slow to cut workforce, because training and severance costs are so high. That's what they say anyway, but poor economic foresight and denial are likely equally at fault. When layoffs finally occur in force though, it's usually deep into the downturn. We hope Obama can bail us out along with everyone else, or writing lugs like me might find themselves busy typing up resumes for folks, and that's just not much fun. Keep the faith my friends.



Please see our disclosures at the Wall Street Greek website and author bio pages found there.