Saturday, March 08, 2008

U.S. Employment Report Confirms Recession

As expected (by me) the employment report showed continued decline in private sector employment who according to these preliminary estimates by an additional 101,000, primarily in manufacturing and construction. In addition, there were significant downward revisions of previous months. The media noted that December employment growth was downwardly revised by 41,000 and January employment growth by an additional 5,000, meaning that the level was 46,000 lower. However, what the media failed to note was that the downward revision of private sector employment was even greater as government employment growth was upwardly revised by 27,000 in December and by 20,000 in January. Add all this up and you get a total downward revision of private sector employment of 93,000, implying in turn that reported private sector employment was 194,000 lower for February than the previously reported level for January.

Private sector employment is down for three months in a row now, clearly indicating a recession. And I in fact suspect that there will be more downward revisions. Although the number of jobs imputed by the flawed so-called "birth-death model" is now lower than in past reports (this is likely one of the reasons for the downward revisions), it still claims that a net 640,000 more jobs was created in new businesses than businesses who failed during the latest year, or roughly 53,000 per month. At this stage of the business cycle, any number over zero likely overestimates this, meaning that the decline in employment is likely even steeper than they now suggest.

This is also confirmed if you look at the household survey. While the payroll survey claims that total employment growth during the latest 12 months 860,000 of which 612,000 was in the private sector, the household survey says that total employment growth during the latest 12 months was just 105,000. If you subtract government employment growth from that you get a decline of 143,000. There can be little doubt thus that private sector employment has fallen since at least December, probably also November, and that it in December-February has fallen a lot more than current numbers suggest.

That, and other indicators, in turn suggests that the U.S. economy clearly fell into a recession during Q4 2007 and that this recession have become more severe during this quarter.


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