U.S. Unemployment Rate Soars to 8.9%, Jobs Contract for 16th Straight Month

By: Mike_Shedlock

This morning, the Bureau of Labor Statistics (BLS) released the April Employment Report. Nonfarm payroll employment continued to decline in April (-539,000), and the unemployment rate rose from 8.5 to 8.9 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Since the recession began in December 2007, 5.7 million jobs have been lost. In April, job losses were large and widespread across nearly all major private-sector industries. Overall, private sector employment fell by 611,000.

Nonfarm Payroll employment has shrunk below early 2006 levels.

Establishment Data

Highlights

• 539,000 jobs were lost in total vs. 663,00 jobs last month.
  
• 110,00 construction jobs were lost vs. 126,000 last month.
  
• 149,000 manufacturing jobs were lost vs. 161,000 last month.
  
• 269,000 service providing jobs were lost vs. 358,000 last month.
  
• 47,000 retail trade jobs were lost vs. 48,000 last month.
  
• 122,000 professional and business services jobs were lost vs. 133,000 last month.
  
• 15,000 education and health services jobs were added vs. 8,000 added last month.
  
• 44,000 leisure and hospitality jobs were lost vs. 40,000 last month.
  
• 72,000 government jobs were added vs. 5,000 lost.
  

A total of 270,000 goods producing jobs were lost (higher paying jobs), and the service sector was clobbered once again as well. Last moth I stated "Government lost 5,000 jobs, a welcome event, but I expect this to change in the months ahead along with various stimulus programs."

Indeed much of the improvement in the jobs report from last month was the addition of 72,000 government jobs.

It was nearly a clean sweep again this month with only government, and education and health services jobs the only gains for the month.

Note: some of the above categories overlap as shown in the preceding chart, so do not attempt to total them up.

Birth Death Model Revisions 2008

Birth Death Model Revisions 2009

Birth/Death Model Revisions

After the typical in January in which the Birth/Death Model revisions bore some semblance of reality, the Birth/Death numbers are back in outer space.

Many small 1-5 person service providing shops in mortgage lending and real estate are throwing in the towel. Those small businesses are not properly accounted for in the Birth-Death Model. At this point in the cycle birth death numbers should be massively contracting.

Month after month, with the exception of January, the BLS is assuming more jobs were created by new businesses than lost by businesses closing shop. The BLS model is horribly wrong.

BLS Black Box

For those unfamiliar with the birth/death model, monthly jobs adjustments are made by the BLS based on economic assumptions about the birth and death of businesses (not individuals). Those assumptions are made according to estimates of where the BLS thinks we are in the economic cycle.

The BLS has admitted however, that their model will be wrong at economic turning points. And there is no doubt we are long past an economic turning point.

Here is the pertinent snip from the BLS on Birth/Death Methodology.

• The net birth/death model component figures are unique to each month and exhibit a seasonal pattern that can result in negative adjustments in some months. These models do not attempt to correct for any other potential error sources in the CES estimates such as sampling error or design limitations.
• Note that the net birth/death figures are not seasonally adjusted, and are applied to not seasonally adjusted monthly employment links to determine the final estimate.
• The most significant potential drawback to this or any model-based approach is that time series modeling assumes a predictable continuation of historical patterns and relationships and therefore is likely to have some difficulty producing reliable estimates at economic turning points or during periods when there are sudden changes in trend.

Household Data

The number of unemployed persons increased by 563,000 to 13.7 million in April, and the unemployment rate rose to 8.9 percent. Over the past 12 months, the number of unemployed persons has risen by 6.0 million, and the unemployment rate has grown by 3.9 percentage points.In April, the number of persons working part time for economic reasons (sometimes referred to as involuntary part-time workers) was essentially unchanged at 8.9 million; however, the number of such workers has risen by 3.7 million over the past 12 months. This category includes persons who would like to work full time but were working part time because their hours had been cut back or because they were unable to find full-time jobs.

Persons Not in the Labor Force

About 2.1 million persons (not seasonally adjusted) were marginally attached to the labor force in April, 675,000 more than a year earlier. These individuals wanted and were available for work and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.

Among the marginally attached, there were 740,000 discouraged workers in April, up by 328,000 from a year earlier. Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The other 1.4 million persons marginally attached to the labor force in April had not searched for work in the 4 weeks preceding the survey for reasons such as school attendance or family responsibilities.

Table A-5 Part Time Status

The chart shows there are 8.9 million people are working part time but want a full time job. A year ago the number was 5.2 million.

Table A-12

Table A-12 is where one can find a better approximation of what the unemployment rate really is. Let's take a look


Grim Statistics

The official unemployment rate is 8.9% and rising sharply. However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.

It reflects how unemployment feels to the average Joe on the street. U-6 is 15.8%. Both U-6 and U-3 (the so called "official" unemployment number) are poised to rise further.

Looking ahead, I expect the service sector to continue to weaken. Mall vacancy rates are rising and a huge contraction in commercial real estate is finally started. There is no driver for jobs and states in forced cutback mode are making matters far worse.

Unemployment is a lagging indicator, it is likely to continue rising until sometime in 2010.

ADP Employment Report

For another look at March jobs including a breakdown of stats by small, medium, and large sized businesses, please take a look at ADP Reports April Nonfarm Private Employment Decreased 491,000.

Depression Level Statistics

I consider these job losses to be depression level totals. Admittedly conditions are not as bad as the great depression, but this is certainly no ordinary recession by any economic measure including lending, housing, bank failures, jobs, the stock market, commodity prices, treasury yields etc. For more on this idea please see Humpty Dumpty On Inflation.

Regardless of whether you think these are depression level statistics, unemployment is high and rising. Moreover, the "adverse scenario" in the Fed's stress test was unemployment at 10.3% at the end of 2010. I think we are going to be close to 10% by August and close to 11% by the end of 2009. Please see Fed Determines Banks Need $74.6 billion in Fantasyland Scenario, $599 Billion in Cakewalk Scenario for more details on the Fed's bogus stress test.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

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