Markets Learning to Grapple With Over 9% Unemployment

This Friday is going to mark the highest rates of unemployment that many investors and many in our producing economy have seen in their professional lifetimes.  The last time the real unemployment was at 9% consistently was in the early 1980’s.  While the nominal 9% threshold will spook most of the public, all you have to do is to look at the equity markets to see how the current rates are being tolerated.  The real data will be the non-farm payrolls, and that will get tweaked after Thursday’s continuing claims and weekly jobless claims data.

Bloomberg has the consensus estimates at 9.2% for the official unemployment rate expected.    Its consensus estimate for the change in non-farm payrolls is currently -530,000 for the month of May.  The highest estimates seen were 9.4% for unemployment and -625,000 for the payrolls change.

If you look at data on the non-farm payrolls in April, that was a sharp reading of -539,000.  That is also on the heels of a reading of -699,000 in March.  The question up for grabs this week is whether or not the rate of contraction in the loss of non-farm payrolls can continue.  If we see a second consecutive contraction in the rate of payroll layoffs, then you are likely to see a cheer from the markets despite a reading north of 9% unemployment. If you take an average of Q4-2008, the official unemployment rate was only 6.9%.

April’s unemployment was 8.9% and March’s was 8.5%. percent in April. If this rate doesn’t ratchet upward again in May, it will be a big surprise as it is hard to find an economist not calling for further increases in the unemployment rate for some time.

The big issues this Friday may boil down to two things.  The first is the difference between total non-farm payrolls and the private sector payrolls.  We have had waves and waves of increases in education, government, and healthcare jobs that have been impossible not to notice.  The Census Bureau has been a contributor to keeping those government jobs higher as well ahead of the 2010 Census.  The second notion is the total continuing jobless claims that we keep seeing of workers who are getting a government check from Uncle Sam for more than one week.  Last week’s Labor Department data showed that the army of unemployed grew by another 110,000 and was at an all-time high of 6.788 million.

Before the unemployment data, we will get to see the weekly jobs data on Thursday and that will show us whether or not we are likely to see the level of continuing jobless claims reach 7 million over the summer.

The June figures may start to look skewed because of the education-related jobs, but we need to get through the May data and this last week’s data before we start breaking down summer months.

Based upon all the data we have seen, we are still bracing for double-digits in the official unemployment rate.  We would also not be too shocked if and when that army of workers in the continuing claims hits 7.5 million or ultimately 8 million before the entire cycle is finished.

The unofficial rate including those not actively searching for jobs, those who are in the stages of becoming the accidental entrepreneurs, and those who are significantly underemployed is already well over the 10% hurdle and has bee for some time.

Jon C. Ogg
June 1, 2009