Non-Farm Payrolls: October Collapse
The October estimate of non-farm payrolls saw firms reduce payrolls by -240K for the month and the rate of unemployment jump sharply to 6.5%. Revisions made by Labor Department subtract an additional -179K over the past two months. The decline in October's payroll tally has reduced employment by 1.2mln during the first 10 months of 2008, with over half of that total occurring over the past 90 days. The household survey saw a decline of -297K, which is above its three-month average of -287K. The number of unemployed individuals increased by 603K to 10.1mln in October.
Inside the data, total private employment declined by -263K on the back of a drop of -132K in the goods producing sector, -49K in the construction sector and -90K in the manufacturing sector. The service sector saw a decline of -108K, with declines in trade, retail, and financial and business services leading the way. The only sectors of the economy that saw an increase in hiring during the month was the education and health sector which added 21K jobs and the government sector that added 23k.
The decline in the rate of unemployment jumped to 6.5%, which is higher than the peak following the most recent recession signaling that the current economic contraction will see a far higher rate of destruction in the labor sector than has been seen since the early 1980's. Since March 2007 the rate of unemployment has increased 2.1% and is up 1.6% since February of this year. A quick observation of the duration of unemployment indicates that individuals are experiencing a much more difficult time finding jobs that correspond with their skill sets. The number of people unemployed for 15 weeks or longer is up to 40K and those experiencing unemployment for 27 weeks or longer increased to 23.6k. This data supports the weekly increase in the weekly continuing claims series that implies that individuals in the manufacturing, real estate and financial communities may be on the cusp of experiencing a type of structural unemployment of the kind that has not been seen since the breakdown of the steel and coal industries over three decades ago.
The slow burn that has typified the labor sector over the past year has proceeded at a red hot pace over the past 90 days, as the headline saw its tenth straight month of declines. The layoffs that the market is observing are directly attributable to the dislocation in economy associated with the ongoing credit crunch. The market should assume that massive layoffs are in the pipeline as firms react to the searing decline in real personal consumption and the coming retrenchment in demand from the external sector. We have updated our baseline forecast of unemployment to 8.0% one year out with considerable room to run to the downside even after the economy stabilizes.