Issue 12 • FEBRUARY 18, 2009

U.S. Jobs Outlook: Dim and Dimmer
Real Unemployment Rate at Record 13.9% and Climbing...

The January jobs report was downright dismal, judging by the “headline” number of nearly 600,000 additional layoffs last month.¹ But, if you look behind the headline figures... the “real” unemployment situation is really dismal, and likely to get much worse before getting any better.

The Labor Department reported that the U.S. economy shed another 598,000 jobs in January, pushing the so-called unemployment rate up to 7.6%. That means we have now lost a total of 3.6 million jobs since the recession began in December 2007. And fully HALF of these job cuts have been since last November— talk about the economy hitting a brick wall!²

The bigger picture? There were more layoffs in the U.S. last year than at any time in the last 64 years, and January’s dismal numbers suggest job cuts are accelerating this year. In fact, layoffs are growing so fast in the current recession that the decline in payrolls over the past four months alone (-2.5 million jobs) is more than the average decline of 1.8 million payrolls experienced throughout an entire “average” recession, typically lasting 10-months.³

In other words, either job losses this time around are more front-end loaded than usual, OR this contraction will very likely last a lot longer and be much deeper, than the “average” recession.

All these layoffs aren’t just confined to housing construction and high finance either. In fact, job losses are becoming very broad based, with 3 out of every 4 firms cutting back their payrolls. So far, we have seen 1.1 million lost jobs in manufacturing, 570,000 in retail, and 848,000 layoffs in professional/business categories, which include banking and finance.⁵

As if these numbers weren’t bad enough, there are even more sobering stats to consider.

The “official” headline jobs report is extrapolated from a “top-down” survey of employers about their hiring (or firing) activities. The companion to this report is a survey of U.S. households that attempts to count the number of unemployed workers using a “bottom-up” approach.

As you probably guessed, the January household survey was even worse, showing a record 1.24 million lost jobs in January alone. The worst number ever recorded since they began collecting house-by-house job data in 1950. According to this measure, the total number of Americans thrown out of work so far in this recession is an unprecedented 6.1 million workers. That’s almost THREE-TIMES the 2.5 million full-time job losses you would expect from an “average” recession. Again, this recession, unfortunately, appears to be way above average.⁶

As the graph above shows, instead of the “headline” unemployment rate of just 7.6%-- the broader “real” unemployment rate hit a record 13.9% in January – also an all-time high.⁷

The “real” unemployment rate (the Bureau of Labor Statistics calls it the U-6 measure) takes account of unemployed workers, plus folks that have essentially given up trying to find work, or are forced to work only part time out of necessity. This is, by far, the broadest gauge of U.S. unemployment and shows just how quickly and sharply the job market has deteriorated in recent months.

Considering this bleak (un)employment picture, it’s no wonder consumer spending and retail sales have come to a screeching halt. The faint silver lining in this dismal data is that unemployment is typically a lagging indicator-- the economy should bottom out before layoffs do. On the other hand, the question now is how many more jobs will be lost before that bottom arrives?

For now, the U.S. economy’s cold, hard winter continues, with more job losses likely in the months to come.

Good investing,

Mike Burnick
Director of Research & Client Communications
Weiss Capital Management, Inc.

¹ Wall Street Journal: “Soaring Job Losses Drive Stimulus Deal”, 2/7/09
² Ibid
³ Merrill Lynch, The Market Economist: 2/6/09
⁴ Ibid
⁵ Wall Street Journal: “Soaring Job Losses Drive Stimulus Deal”, 2/7/09
⁶ Merrill Lynch, The Market Economist: 2/6/09
⁷ Ibid