Saturday, May 9, 2009

Too Soon to Break Out the Champagne

From Washington, D.C. to Wall Street too many economists broke out the champagne and toasted the better-than-expected decrease in April payroll employment of 539,000 jobs and smallest monthly drop since October. Almost lost in the apparent glee was a total 66,000 downward revision to the February and March job counts and the fact the the April data was enhanced by the hiring of 62,000 new 2010 census workers. Although there will be more census jobs to come and they are certainly "real," it goes without saying that these jobs are temporary. Thus a better measure of the "true" run rate of job losses in the economy is in excess of 600,000. To be sure the second derivative of the employment decline is negative(falling at a lesser rate), the 5.7 million job losses recorded since the start of the recession in December 2007 remains well on the road to 7.5 million.

Indeed the data for June, which will be reported in early July, could very well be the worst since the recession started. How so? Part of the answer is technical and part of it is certainly real. It is obvious to all that the college hiring season this year was the worst in memory. Meantime the seasonal adjustment factors used by the BLS look for a big increase in employment by new entrants to the workforce. This year it is highly likely that the increase in employment coming from new college and high school graduates will be de minimus. Hence the data could very well show a big drop off in jobs perhaps as high as 750,000.

From a qualitative standpoint our sources tell us that the pasta business is booming. For example the Ragu tomato sauce factory in Owingsboro, Kentucky is running 24/7 and still cannot meet the demand. If this recession has a culinary theme, it is back to cheap comfort food with a high carbohydrate content. Thus we were not surprised to see that only industry in manufacturing that increased employment last month was processed foods.

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