The S&P500 rebounded 3.2% last week but on lower volume, suggesting that the buying was not done with strong conviction. While the VIX (or fear) index fell during the week, its gradual turn to the upside–which began in the summer–is still in effect.
The economic data were mixed to weak. ISM Manufacturing came in better than expected; ISM Non-Manufacturing was worse. Factory orders were slightly lower than consensus estimates. Initial jobless claims were 512,ooo (better than expected), but the claims from the prior week were revised lower. The big news was non-farm payrolls, which disappointed. The unemployment (U-3) rate soared past 9.8% from the prior month all the way to 10.2%, which was much worse than predicted. 190,000 jobs were lost compared to the expected loss of 175,000. The average workweek stayed at a record low of 33.0 hours; it was expected to rise. Finally, consumer credit fell almost $15 billion, 50% more than the consensus estimate.
Technically, the rebound in the S&P is bumping up against the downtrend established over the previous two weeks. The weekly charts are still toppy–last week’s price range set a lower low and a lower high (when compared to the prior week), despite the 3.2% rise. The monthly bear market downtrend is still holding.
How bad was last week’s unemployment picture?
The headline rate, 10.2%, was the highest level reached in this country since April 1983, over 26 years ago. The highest level reached during the 1980’s recession was 10.8%. We’re not very far away from breaching this level.
People who’ve been unemployed for over 27 weeks (ie. the long-term unemployed whose old job is likely gone forever) rose to 3.6% of the civilian workforce. This this a record high for this measure; records began in 1948. So, the plight of the long-term unemployed is the worst it’s been since the Great Depression.
But here’s the scariest statistic, one that did get front page coverage in the New York Times. The broadest measure of unemployment (the one that includes folks who are so discouraged that they’ve given up looking, and those who can’t find similar work and resort to taking lower-paying survival jobs that don’t fully use their skills) is called U-6.
This spiked to 17.5%.
In his New York Times piece, David Leonhardt pointed out that this is the highest level since the Great Depression. More than one out of six workers were unemployed or underemployed last month. And by the way, this is worse than the highs reached in the recession of the 1980’s.
And he reminded readers that this measure too will most likely keep deteriorating well into 2010.
But isn’t unemployment the classic “lagging” indicator, the message that most of the media pundits and government officials endlessly try to shove into the public’s mind?
Not always. In most inventory based, inflation control recessions, yes unemployment lagged the recovery, and then came roaring back when the private sector economy reignited.
But this is a balance sheet recession caused by excessive debt levels that finally started imploding. In these types of recessions, unemployment does NOT lag the economic rebound. It creates a negative feedback loop that puts downward pressure on an economy that has not even begun to rebound organically (ie. without government created demand).
We last saw this in the Great Depression in the 1930’s, and in Japan today–where the economy has just entered its third decade of stagnation.
In other words, today’s high (and climbing) level of joblessness could only make things worse for the economy.