In Article 7 of the FT Book I introduced you to the key economic release in the US which is the unemployment data. We get to see this on the first Friday of each month. The figures published last Friday were once again shockingly bad. The headline unemployment rate hit 9.8% and there was a fall of some 263,000 non-farm payroll jobs. This was the 21st consecutive monthly decline in employment in the US which confirms that the economy is still in dire straits. Not surprisingly financial markets took fright at the dreadful news with the S&P 500 index falling 1.4% on the day and the yield on 10-year Treasury Bills hitting a low of just 3.22%.
In the analysis of this Article (page 37-38) I set out the reasons that this release has such an impact on the financial markets. The key factor is that it is a significant input into the Fed's interest rate policy-making body (the FOMC). With this in mind we can expect US short-term interest rates to remain low for some months to come. We will start to see some evidence of economic recovery when the rate of decline in US employment finally starts to slow. At present this is unlikely to be the case until the Spring of 2010 at the earliest. Given this the Autumn rebound in financial markets has not surprisingly run out of steam.
Oct 5, 2009
US Unemployment still rising!
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The US unemployment data was indeed demoralising for those whispering of an economic recovery “set to commence”. A loss of 263,000 jobs, adds to the historic high unemployment rate of 9.8%. However Mr Greenspan (former chairman of the Federal Reserve) seemed highly optimistic of better than expected final quarter growth prospects, expected to be 3%. The situation seems no better in the U.K with Marvin King head of The Bank of England having to answer tough questions on expected inflation rates, and a quantitative easing program which seems shy to produce spectacular results. Mr King however remained quick on his feet (though for the most part he was sitting down at the meeting); he remained adamant that inflation remained on target and we would not see its “affects” for some time.
The U.S unemployment data although grim can’t hide the fact that positive growth is most likely to beat targets. “Jobless numbers did not change the fact the US economy was starting to recover. “Some of the numbers coming in have been a little bit soft. But this is what a recovery looks like,” (Financial times, 2009) It’s best the markets keep a brave face as they head into the dark economic winter, any signs of weakness might attract the bears.
Rappeport, A, US growth could pass 3%, says Greenspan, The Financial Times, viewed 05-10-2009
< http://www.ft.com>
It's not a very good outlook for the US in the short term anyway as unemployment went up from 9.8% and entered the world of double figures at 10.2%. This is further misery on an economy which looked to have eased in this crisis but it only looks to get tougher for the americans. The fall in non-farm payroll jobs hit 190,000 for the month. Although unemployment rose, those with existing occupations saw a rise in hours and even hourly rates. This shows that even though there is an increase in numbers off the payroll, that there is a demand for more hours and company's would rather pay more to existing staff than hire more to meet the hours required.
On the other hand however, there is slight hope for the US economy as the S&P 500 has been on an increase before and after the employment release and has seen the index increase by nearly 20 basis points and counting and the Dow Jones hitting a one year high. So maybe there is some good to come as the US Treasury also expects to make some heavy sales during the week ahead and markets around the States having a slightly better outlook than say a month ago.
Of course there will be unemployment, as there is less spending to finance employees. However note that firms are respected by shareholders who employ less people. But why? This is because wage/salary is an expense, and less expenses means more profit for its shareholders. However unemployment will naturally increase as there is a downturn, and with consumer confidence at their lowest and less disposable income. Businesses cannot thrive, so what did everyone expect to happen. The only way to reduce unemployment can only be linked to lowering taxes, therefore everyone has more money to circulate the economy. This will encourage businesses to expand and have people work for them, in turn this will better the economy.
The US unemployment rate is currently 10.3%. This was largely in October 2009 where 29 states and the District of Columbia recorded over-the-month unemployment rate increases. Nonfarm payroll employment increased in 28 states and the District of Columbia, decreased in 21 states, and remained unchanged in 1 state. The largest over-the-month increase in employment occurred in Texas (41700), followed by Michigan (38600), California (25700), North Carolina (12100), and Pennsylvania (10600).
Due to the immense fluctuation the rate of unemployment hasn’t settled; and the forecast provided shows that in the US they are attempting to stabilise jobs. Up to December it is predicted the unemployment rate will be 10.4%, and gradually by June 2010 be at 10.2%. From this I believe US are attempting to control unemployment rate from further rising; but also require developing more jobs in different sectors.
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