Yes, payroll numbers, unemployment and joblessness are lagging indicators. It’s a well known understood process: As companies start to feel more confident about economic prospects, they do the following:
1) Improve productivity, wringing out maximum output from each employee;
2) Recall idled (temporarily laid off) employees;
3) Have workers put in overtime, working later nights and weekends;
4) Hire temp workers. This pool of labor are administratively cheaper to manage, and much easier to fire — its a temporary position after all.
5) Higher new full time employees.
But there lags, and then there are LAGS, and presently, we are doing more than lagging:
Source: NY Fed
We are reflecting a major secular change in the labor markets. These have been (mostly) ignored by the powers that be in both Washington D.C. and on Wall Street up til now.
Today’s WSJ described the situation as follows:
Employers cut jobs for a seventh consecutive month in August, as the labor market remained in a funk despite a brightening economic outlook. Nonfarm business payrolls declined by 93,000 last month, the Labor Department said Friday. The cut, the steepest in five months, brought total job losses since the start of the year to 431,000. The unemployment rate fell a tenth of a percentage point to 6.1%.The sharp decline in payrolls was a surprise. Economists surveyed by Dow Jones Newswires and CNBC had forecast a gain of 12,000 jobs and for the unemployment rate to remain steady at 6.2%.
The numbers highlighted the peculiarity of the current economic recovery. The economy grew at a solid 3.1% annual rate in the second quarter, and forecasters are betting third-quarter growth will be at least 5%. But employers keep cutting payrolls. One reason is a surge in productivity, which rose at 6.8% in the second quarter. That allows companies to delay hiring until profits improve and the economy recovery has solidly taken hold.
August’s job cuts were broad based and remained heavy in manufacturing, a sector that suffered the brunt of the economic downturn. Manufacturers shed 44,000 jobs last month, raising the total of jobs lost in the sector to about 2.7 million over the last three years. President Bush on Monday announced he was creating a new assistant-secretary position in the Commerce Department to focus on revitalizing the factory sector.
This continues to be an issue which will have repurcussions for the markets and both the current occupant of the White House and the rest of the Presidential aspirants . . .