Research — RGE’s May 6 unemployment outlook

• ADP: Private firms cut jobs at a slower pace in April 2009 by 491,000 after cutting 708,000 jobs in March and 681,000 jobs in February. Manufacturing lost 159k jobs while services lost 22k jobs with more job losses in small and medium sized firms relative to large firms
• Non-farm Payrolls fell 663,000 in March 2009 and 651,000 in February after falling 741,000 in January (the peak so far in this recession)
• April 30: Initial jobless claims fell 14,000 to reach 631,000 in the week ended April 25. The 4-week moving avg fell to 637,250 from 648,000. Continuous claims jumped by 133,000 to a record 6.27 million. Jobless rate rose to 4.7% from 4.6% (highest since 1982). The 4-week moving average peaked in the week ending April 3 at 658,800. Analysts estimate that jobless claims generally peak 4 to 10 weeks before the economy hits a trough
• The ISM Employment Index for manufacturing and non-manufacturing also rose in April 2009. Manpower Survey shows most employers plan to hold headcount steady in Q2 2009 relative to reduce headcount. Challenger job cuts announcements in April slowed to 47% y/y led by govt agencies and automotive industry and the total job cuts announced was the lowest since October 2008. Online job vacancies continues to decline though the pace of decline has slowed since Feb 2009. JOLTS: The February 2009 job openings rate marginally edged up to 2.2% from 2.1% in January, while the hires rate remained unchanged at 3.3%
• Even if pace of job losses ease, large lay-offs in past months and sluggish wage growth will continue to put pressure on the real economy and financial sector via lower consumer spending and higher defaults and delinquencies on loans. This feedback loop might hinder economic recovery. Job losses and rise in unemployment rate will also continue through most of 2010 with a jobless recovery
• In 4 of the past 5 recessions, claims peak leads the NBER weekly trough by a range of 4-6 weeks. As a result, ultimate NBER trough of the current business cycle is likely to occur in May or June 2009. But possible side effects of a flu pandemic or a secondary round of auto plant closures might cause claims to hit another peak and would delay the trough of the recession. But neither unemployment claims nor unemployment rate are given the single most consideration while calling for the end of the recession by NBER (Robert Gordon)
• A sustained move in initial claims below 600,000 is a sufficient condition that the recession is over, which might occur in Q3 2009. But a stabilization in labor markets requires a sharp fall in claims below 500,000. The turn in continuing claims consistently lags the move lower in initial claims by a quarter or more as the economy moves out of recession (JP Morgan)
• An improvement in the 4-week moving average of about 20,000 relative to its peak has only a 50% probability that the worst is over and might be transitory, but once the improvement increases to 40,000 the probability is around 90% (Goldman Sachs, not online)
• In the last two recessions though initial claims peaked just before the end of the recession, then stayed elevated for a long period following the recession – a “jobless recovery”. There is a good chance this recovery will be very sluggish too and claims will remain elevated for some time (calculated risk)
• Jobless claims would have to drop to the mid-500,000 level before the end of Q2 2009 for a flat GDP growth in the second half of 2009. Moreover, jobless claims would have to fall to the high 400,000 level or low 500,000 to confirm a second-half of 2009 recovery of about 3-4% growth (Alliance Bernstein)
• the current business cycle will likely reach a trough some time in June 2009, with at least 95% confidence that the recession will probably end no later than Q3 2009 (UOB)

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