Picture du Jour: Payrolls disappoint

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The U.S. Labor Department yesterday announced that non-farm payroll employment declined by 131,000 as the dismissal of census workers contributed to a reduction of 202,000 in government payrolls. The jobless rate was unchanged at 9.5% as hundreds of thousands of workers left the labor force.

Asha Bangalore (Northern Trust) commented as follows: Private sector hiring remains unimpressive after four quarters of economic growth.  The pace of hiring is significantly weaker than prior recoveries following long and deep recessions (see chart below).  The chart is an index chart where payroll employment in the first quarter of a recovery is set to 100. Payroll employment before and after a trough are computed accordingly. A reading of 102 is a 2.0% increase in employment from the trough, while a reading of 98 stands for a 2.0% decline of payroll employment).  The current recovery shows no change in employment since the trough versus gains of 2.4% and 3.4%, respectively, posted after four quarters of economic growth during the two economic recoveries following the 1973–75 and 1981–82 recessions.”

Source: Northern Trust – Daily Global Commentary, August 6, 2010.

Regarding the implications of the disappointing numbers, Bangalore said: “… the majority of FOMC members, and certainly Fed Chairman Bernanke, are becoming more concerned about the anemic job growth taking place in this recovery and the lack of bank credit creation to spur future job growth. Thus, the odds are rising that the Fed could take some additional token easing actions. One such action would be for the Federal Reserve Board to reduce the interest rate the Fed pays on depository institution reserves to zero from its current level of 0.25% in an effort to induce these institutions to put some of their over $1 trillion of excess reserves to work as loans and investments.

“The FOMC could authorize at its meeting on August 10 the reinvestment of its maturing mortgage-backed securities holdings into similar securities or U.S. Treasury securities. Although the level of the interest rate on conventional 30-year maturity mortgages has come down since the Fed’s cessation of open market purchases of mortgage-backed securities at the end of March, the spread of this mortgage rate over the yield on the 10-year Treasury security has increased by about 30 basis points.”

If the above graph is not dour enough, Calculated Risk (via Clusterstock – Business Insider) provided the chart below, showing the percent job losses relative to peak employment month for post WWII recessions. As indicated, the current trajectory (red line) has taken a turn for the worst …

Source: Calculated Risk (via Clusterstock – Business Insider), August 6, 2010.

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