This morning, the employment numbers for January came out, and they significantly added to the case for a recession. Total non-farm payrolls actually fell by 17,000 jobs in the month. The unemployment rate, on the other hand, ticked down to 4.9%.
There were also major revisions to the data for prior months (for all of 2007, and this is normal in January to see the revisions for all of the previous year). On the plus side, the December employment was not as ugly as it first appeared, and was revised up to a gain of 82,000 jobs from the originally reported gain of 18,000 jobs.
However, before getting too excited about that, November was revised down sharply to a gain of 60,000 jobs, rather than the original 115,000. The revisions for the first ten months netted out to 200,000 fewer jobs than originally reported. Thus the anemic record of job creation in this expansion was even more anemic than first thought.
Looking underneath, the overall decline of 17,000 was even more discouraging.
Goods-producing jobs plunged 51,000, just about equally split between losses in Construction (-26,000) and Manufactruring (-27,000). Service jobs expanded by 34,000, with strength in Education and Health Care (+47,000) and Leisure and Hospitiality (+ 19,000). Retail jobs rose by 11,000, but were offset by a 11,000 decline in Business and Professional services.
Which sector do you thinks pays better on average -- Retail or Professional Services? Leisure and Hospitality or Manufacturing? Average hourly earnings grew by only 0.2%, vs. 0.4% last month. The average workweek also fell to 33.7 hours from 33.8 hours.
Inside the unemployment rate, the gains were concentrated among women, where the unemployment rate fell from 4.4% to 4.2%. That was offset by a 0.2% rise for blacks to 9.2% and a big jump in the teenage unemployment rate to 18.0% from 17.1%.
All in all, this is a very ugly report. The pillars of the bullish case on the economy are being undermined one by one. Chief among them was that employment growth would continue to provide increasing wage income to consumers. That case is looking more and more dubious.
The second pillar was that increasing exports would keep the economy afloat, but given the sharp deceleration in export growth in the 4th quarter from the 3rd quarter
(from 19.1% to 3.9%), that case is looking increasingly weak. While recent very aggressive policy moves on both the monetary front (Fed funds cut 125 basis points in the last 2 weeks, 225 since the cutting started around Labor Day) and the fiscal front (a stimulus package of approximately $150 billion or 1% of GDP) will help cushion the decline and make the recession shorter than it otherwise would have been, it does not look like a recession can be avoided.
The consumer is tapped out and his balance sheet is a mess. The only reasonable way for it to be repaired is for the consumer to cut back on spending. This will hit makers of highly discretionary big-ticket items hard: names like Harley Davidson (HOG) and Arctic Cat (ACAT).
The already suffering Auto industry will suffer more, dragging down not only General Motors (GM) and Ford (F), but suppliers like Visteon (VC), Johnson Controls (JCI) and Magna International (MGA). It will also hurt the retailers such as J.C. Penney (JCP) and Kohl's (KSS).
