Well by now most of you have probably heard about the rather dismal jobs numbers from the BLS. The establishment survey indicates that 4,000 jobs were lost last month and made a major downward revision to July’s job numbers. Initially, July was reported at 92,000 jobs, but now the BLS is putting that number at 68,000. So much for the, “They always revise those numbers up,” mantra.
But is this the whole story? I don’t think so. Many people would often point to the Household Survey as another source of information on employment, but there the picture is even more grim with a loss of 316,000 jobs. Prof. James Hamilton points to yet a third data source which indicates that there was in increase in jobs of around 10,000 jobs. Prof. Hamilton then combines these three data sources using a weighted average and comes up with a net loss of 65,000 for last month. And as a side note, Prof. Hamilton, using his weighted average, predicted job growth for July of around 60,000 which fits quite nicely with the revised BLS data.
So what does all this mean? I think there is a very real possibility that the meltdown in the sub-prime mortgage market is spreading to other parts of the economy. Greg Mankiw, for example, points to the market for a recession in 2008 as being around 50%. Even if you think that that price is too high (hey money making opportunity, go put a bet down) there is still the overall trend. Perhaps people are too pessimistic, but there sure does appear to be a growing trend and to argue that the trend should really be zero is a rather extreme position.
Jared Bernstein at the EPI also notes the rather dismal performance of the jobs market for the past three months. For example, during the past three months the BLS Establishment Survey has been revised down 81,000 jobs (not that I expect this data to kill the overly optimistic mantra that “they revise these numbers upwards later). Monthly payroll growth is also seen to be on a downward trend since last September. Bernstein also notes that the reason the unemployment rate is unchanged is that there was also a decline in the number of people in the job market. That is both the numerator and the denominator decreased resulting in little or no change in the overall rate. One could try to argue that such movements in both the number of people in the job market and the number of people is good, but I sure wouldn’t. In summary Bernstein writes,
A central question surrounding today’s report was whether it would provide clear evidence of a contagion effect from financial markets. Are the bursting housing bubble, the credit crunch, and recent financial market turmoil having a negative impact on the job market? The BLS report provides an unequivocal “yes” in response to that question. The fingerprints of these problems are all over today’s report. While we cannot draw a firm conclusion based on one month of jobs data, a host of factors point to a new and troubling job market: negative revisions of earlier months’ data, widespread losses and slowdowns across industries, and weak labor force growth.
Sure is hard to disagree with this. Job growth has been declining for months. In looking at private employment from the Household Survey we see a similar trend as with the Establishment Survey. Overall, this is not good news at all, and it is very hard to spin it as good news. Given this information, it is hard not to conclude that the chances of the economy going into recession sometime in what is left of 2007 or 2008 has now just gone up.