Sunday, April 6, 2008

Employment down: Does this spell recession?

he unemployment rate rose from 4.8 to 5.1 percent in March, and nonfarm payroll employment continued to trend down (-80,000), the Bureau of Labor Statistics of the U.S. Department of Labor reported Friday. Over the past 3 months, payroll employment has declined by 232,000.

In March, employment continued to fall in construction, manufacturing, and employment services, while health care, food services, and mining added jobs. Average hourly earnings rose by 5 cents, or 0.3 percent, over the month.

The number of unemployed persons increased by 434,000 to 7.8 million in March, and the unemployment rate rose by 0.3 percentage point to 5.1 percent. Since March 2007, the number of unemployed persons has increased by 1.1 million, and the unemployment rate has risen by 0.7 percentage point.

So that's the bad news. Now for some perspective. The magnitude of the employment decline is pretty small: less than 2/10s of one percent from the peak in December through March. So don't think of massive layoffs; think of minor adjustment. (I know that to people who have lost their jobs, it feels pretty massive.)

The Wall Street Journal was more inane than usual. They noted the 80,000 decline in jobs and said, "Had it not been for a rise in government jobs last month, payrolls would have fallen by around 100,000." Let me add that had it not been for the drop in construction employment, payrolls would only have fallen by 29,000. Did you learn anything from this? I didn't think so.

How should business plans be adjusted now?

Now that you've looked at the forest, spend more time with your trees. Look at your own sales by segment and geography. Watch your customers' sales closely. There's plenty of variety of there; you need to know whether you are in the happy side of the economy (and there certainly is one) or the sad side.

So does this spell recession? I can only say at this point...maybe. Next month we could (not likely, but possible) see an expansion of employment, followed by nothing but expansion for the rest of the year. If that happens, then we'll look at these three months of decline and say "blip" rather than "recession." So anyone who says that we are definitely in a recession now is making a forecast about the next few months. They are probably right, but bear in mind they're making a forecast, not reading hard data.

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