Labor Market Getting Worse--How Long?

Posted by: Michael Mandel on August 01

This morning’s employment report shows the unemployment rate now up to 5.7%, while the private sector lost 76K jobs. Outside of health and social assistance, the loss was 110K.

Now, the unemployment rate never gets revised (except for some small fiddles for seasonal adjustment). The job number does get revised, and is likely to be revised down.

But the real question now is how long the weakness in the labor market is likely to last. After the 2001 recession, private jobs kept falling and didn’t turn up until 2003. That was a heck of a long time. In large part, that was the result of a surge of outsourcing to China and other countries, which drained away any strength in the labor market recovery.

The problem this time will be the weakness in consumer demand, so that we won’t get any bounceback in retailing or any consumer-related areas.

I’m not sure I know the answer yet…it’s something I’m going to keep an eye on.

BTW…I’m still thinking about whether it’s the right time to buy in the stock market

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Reader Comments

Dan from CT

August 1, 2008 01:35 PM

We have passed the tipping point with outsourcing and free trade. There is no sector left to pull the US economy out of its recession. Most solid middle class service,tech and manufacturing jobs lost to oursourcing are gone for good.Its time to pay the bill for the madness fostered on us by the cultural elites of both parties who are enamored with free trade.

Pat C

August 1, 2008 02:04 PM

I am 59 and just found a position after searching for over a year. I am very skeptical about what I hear from the BLS. From my perspective and my near immediate family (Unless we are all college graduate misfits?!, there are very few good jobs out there. I don't see us resolving any root economic problems other than temporary window dressing. If you go to McDonalds or Walmart you see many 50+ somethings working in low level positions.
I have a couple of questions I would love to have figured out:

2)I think the employment problem is much deeper than is being reported.
How many folks are out there and just not included in the statistics because they just disappear from the counting?

3) How many folks took advantage of the recent Emergency Unemployment extension and how do they figure into the numbers? It would seem that this information would be a good indicator of how deep the unemployment issue is and also a good check of the estimates being made by BLS.

THANKS!

theantibush

August 1, 2008 04:15 PM

No big deal. Im sure these were all jobs Americans didn't want to do anyway.

Certainly, they were not jobs Americans are unqualified for. For those we must boost H1-B quotas, or eliminate them entirely. There is a labor shortage in those areas, as stagnant and falling wages clearly indicate.

Joe Cushing

August 2, 2008 12:39 AM

At least this time around, the outsourcing is slowing a bit. I heard that some companies are even repatriating jobs or halting planned outsourcing projects. Labor is going up in China/India and the Dollar has gone down. Add in High oil to shipping costs too.

I'm planning my first stock purchase of the downturn this month. I'd like to see the market fall another 3 or 4% in the next couple weeks. Who knows where the bottom is? I'll just get some more in a few months and average it out.

Rycoka

August 2, 2008 06:00 AM

Hmm,

Time to invest in equities? Personally I think that the best approach should be to look at some basic principles:
Have you invested adequately in your own education and that of your dependents? Definitely has to be first priority.

Are you out of debt? Being in debt changes your choices and should be avoided if possible.

Is your personal environment pleasant? Investing modestly in some home maintenance, nice artwork, interior decorating or landscaping is always worthwhile.

If the answer to all these is yes then perhaps the next thing to look at is your local area. What enterprises are there in your area that are doing a job you think of as worthwhile and requiring investment? Are the people involved in these enterprises people you trust and share values with? Is there a mechanism to invest?

Local is important. If you are making out like a bandit but your community is in the doldrums, lots of your lovely wealth will end up going on fences and security, and a trip to your local community precinct is going to be unpleasant.

Don't stay in cash. If you are doing that then your money is being used by banks and the evidence is they don't know what to do with it.

If you don't have time to make a good local investment decision, find someone you trust who can. Big corporate type investment decsions should be left to big corporate entities. Personal investment should be in things you are personally interested in succeeding, not just making you rich.

Mike Reardon

August 2, 2008 10:49 PM

Greenspan in his CNBC interview the other day. Said the US housing market is, the center of world credit evaluations, and until the world credit market establishes that final real value of our failing housing market they can not reestablish the value of leverage going forward. No one has said anything about this part of the CNBC interview, it makes a real solution difficult and extended.

He said this housing correction and liquidity stoppage is a once in a century event. Greenspan said sufficient liquidity was in the world market. But it was held in check until US home price finally hit a true market price so that the cost of leverage can be established.

I think his bent was, until a fiscal fix from Congress is in place, its all fill. Just pushing loans that may also go underwater before the bottom is found is not enough. A housing backstop has to be put in place by Congress to restart a normal Market.

That would get labor a comes back sometime after this fix has been put into in the middle of the next Administration, if the Congress acts.

Joe Cushing

August 3, 2008 11:38 PM

Mike,

We don't need the government to step in. When the price gets low enough or when people start financing real estate with cash, we will have found the bottom. In many places, this is already happening at an accelerating pace. Some banks are lowering prices far enough to spark 2003 style bidding wars. We are well on are way to the beginning steps of recovery.

Sally in Chicago

August 4, 2008 07:01 AM

It seems to me that Bin Laden has won even if not caught. He wanted $146 gal oil prices and got it. He also predicted that fighting the Taliban would cripple the U.S. economy & would suffer like the Russian's....well we may not be as bad as Russia, but it's bad.

Dominic

August 4, 2008 11:34 AM

Mike Reardon

What the bubble blower (a.k.a. Alan Greenspan) said makes no sense at all.
The credit markets needs to "figure out" the "final real value" of the housing market so we can "establish" the level of leverage going forward??
What is the "true market price" of an item Mr. Greenspan?? It is what the market will bear...
In housing the amount of leverage establish the market value of real estate, the consequences of allowing more actors to buy in a market are rising prices.
In a deleveraging environment, housing prices fall.
Again, It is the amount of leverage and, more importantly, the willing buyer ability to pay that set market prices for housing no the other way around.
If leverage will start to creep up again, prices will rise.
Real incomes, at the end, are the most important factor in the system, market prices are just outcomes.
For example, set a minimum down payment of 25% or more like in the good old days and you will see how prices will plunge.
However, I'm not surprised that nobody challenged Greenspan's ridiculous statement in that interview, after all CNBC is an entertainment channel...

Jim D

August 4, 2008 01:31 PM

Joe -

Housing will fall until properties are cashflow positive from day 1. *That* is when investors (as opposed to speculators, which is what you describe) will step in and buy properties.

Sadly, that means that in most of the coastal areas, they've still got 30% or more to fall - unless you think rents are going to rise in a falling economy, which is unlikely.

Kartik

August 4, 2008 02:04 PM

Any dip between now and October is absolutely the right time to buy the following sectors :

Small-Cap Value : IWN, IJS
Financials : XLF
International Value : EFV

All these will bounce strongly once a recovery is in sight.

Mike Reardon

August 4, 2008 10:07 PM

Dominic

The full Greenspan video interview as it was on CNBC can be found at this site

http://www.cnbc.com/id/25953040/site/14081545/

in the center of the page.

Its individual parts have been reported by many papers and web sites without giving the total picture. Even a WSJ Sunday show with a interview had a smaller less encompassing version.

I was relating to the timeline for a next step after a Congressional fix is put into place. My take was his pushing a fiscal backstop (like FDIC for housing) over an open FED window solution.

Brandon W

August 11, 2008 08:43 AM

Scientists find way to make all unemployment disappear. BLS starts modifying formulas:
http://www.onlineweblibrary.com/blog/?p=674

Had to do it.

Thank you for your interest. This blog is no longer active.

 

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Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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