From sputtering to breaking down. The S&P500 last week ended on a down note–falling 2.5% for the holiday shortened week. Volume fell as can be expected in early July, but the VIX jumped which usually doesn’t happen in the sleepy summer months.
The weekly data added more evidence that the green shoots theory may have been overblown. Consumer confidence fell, when it was expected to rise. The ISM index came in slightly weaker than expected. Auto sales (except those from Ford) were horrible. And the big downer was the jobs data. Non-farm payrolls fell by 467K, almost 100K more than expected. Unemployment (U-3) rose to 9.5%, the highest level since 1983. Hourly earnings were flat, not rising 0.2% as expected; and the average workweek fell to 33.0 hours, not 33.1 hours as expected. Also, initial claims came in at 614K and continuous claims were 6.7 million, virtually at record highs.
The technicals are pointing down on the daily charts. After three straight weeks of dropping, the weekly charts are showing signs of a weakening uptrend, and the monthly charts of the S&P500 are still in firm bear market territory.
After the jobs report came out, Jeff Frankel (professor at Harvard University) posted some interesting insights on his blog. He started by de-emphasizing the importance of the unemployment rate, mainly because of the the difficulty of measuring who exactly is looking for a job.
Instead he focuses on the employed people (less debatable) and notes that as a percentage of the entire population (also not very debatable), the fraction of the people with jobs has declined to 55%. That’s well below the peak reached in 2001 at 64%. Not a good sign.
But because employment is a lagging indicator, Mr. Frankel highlights another measure: the total hours worked in the economy. And these hours are driven by the length of the workweek.
Why is this more of a leading indicator? When the economy slows, firms will cut back on hours worked (the workweek) before laying people off. When the economy grows, firms will bump up the workweek of existing employees before they hire new people.
This last jobs report told us that the workweek is still falling and setting new lows (33.0 hours). This is pushing total hours worked down as well.
So as a leading indicator, this data is suggesting that the economy is still not recovering. In fact, this data suggests that more (many more) layoffs are possibly on the horizon.
Not a good sign.