If the relationship shown in the following chart between non-farm payrolls and service sector ISM hold, then we would expect non-farm payrolls to drop 375k to 400k.

Here’s how the leading indicators for non-farm payrolls stack up:

1. Employment Component of Service Sector ISM Dropped to Lowest Level on Record
2. Employment Component of Manufacturing Sector ISM Falls to 34.2, a Record Low
3. ADP Report Private Sector Job Losses at 250,000, Record Low
4. Challenger Layoffs Skyrocket 148%, Highest Since January 2002
5. University of Michigan Consumer Confidence Index Hits 28 Year Low
6. 4 Week Average Claims Reaches Highest Level in 26 Years
7. Monster.com Index Drops 7 Points, Down 22% YoY
8. Continuing Claims Shows 109K Increase

Large Job Losses to Continue Beyond November

Don’t expect the job losses to end in November either. More layoffs have been announced this past week by companies like JPMorgan and AT&T. The current recession is the closest to the 1980s recession, when job losses continued for 17 consecutive months. Even the recession in 2001, which was shallower than the current recession had 15 consecutive months of job losses. Therefore non-farm payrolls should continue to remain negative into the first half of 2009. Furthermore, a large drop in non-farm payrolls does not mean that we have hit a bottom.

In analyzing non-farm payrolls data during past recessions, we see that at the beginning of an official recession, as defined by the National Bureau of Economic Research, non-farm payrolls start to decline rapidly. However after falling between 200k and 300k, job cuts stall and then pick up once again. We saw this trend in the 1981 to 1982 recession, the 1990 to 1991 recession and during the 2001 recession. It should happen again in 2009.

The following chart illustrates the double dip trend of non-farm payrolls during the 2001 and recession.

Here are the charts for 1991 and 1981