US unemployment: So much for green shoots. The 467,000 decline in US non-farm payroll employment in June was greater than in any month of the 2001-02, 1990-91 or 1980-82 recessions. Even discounting possible “noise” in the Bureau of Labor Statistics figures, this shows the recession is not yet bottoming. Stock markets, budget estimates and stress test assumptions may all have been too optimistic.
The decline in non-farm payroll employment was higher than expected and reversed what had appeared to be an improving trend. US job losses in the last 12 months – totalling 5.66 million – are almost twice the next-highest loss on record, the 3.17 million decline in the 12 months to September 1945, which was caused by the reduction in war-related employment.
Compared with recent US recessions, the new figure looks particularly dire. In all three recent downturns, peak monthly job losses were lower than June’s. Workforce expansion put the 1980 recession’s highest monthly job loss above June’s in “real” terms, but the sustained rate of job losses since the banking crisis hit last autumn is unprecedented since the Great Depression.
These losses indicate that economic activity is still on a downward slope. Thus the 40 per cent rise in the stock market since March may prove over-optimistic, as will the assumptions in the US Treasury’s bank stress tests. Under its “more adverse” scenario, the Treasury assumed an 8.8 per cent average unemployment in the second quarter, against an actual 9.2 per cent and an unemployment peak of 10.4 per cent in late 2010.
There is an even more important implication for the federal budget, sent to Congress on May 7. It assumed unemployment of 8.1per cent in the fourth quarter of 2009 and an annual average of 7.9 per cent in 2010. Both figures now appear much too low, suggesting that the projected federal deficits of $1.84 trillion in the year to September 2009 and $1.26 tr in the following year are substantially understated.
June’s payroll decline figure may yet be revised, and doubtless contains substantial “noise.” Nevertheless it suggests that the economic bottom has yet to be reached.