The pundits are shocked, shocked to learn that jobs are still being lost. But there’s really nothing surprising in today’s jobs report for June, released this morning by the Bureau of Labor Statistics. Recessions have a habit of doing that, and for longer than the crowd expects. Disappointing and discouraging? Absolutely. Unfortunately, more of the same is probably coming.
Meantime, that doesn’t change our view that the recession may be close to a technical end. But before we get into that point—again—let’s look at how the latest nonfarm payrolls stack up.
As our chart below shows, last month’s job loss was steeper than May’s. Nonfarm payrolls were lighter in June by 467,000, quite a bit deeper than May’s 322,000 decrease. The good news is that last month’s decline is still a lot better than the worst monthly tumble so far in this recession—January’s 741,000 slump.
But let’s not mince words here: job destruction remains potent. The month-after-month declines are adding up and the economy is sure to take a heavy blow as a result. At the top of the list of likely victims: consumer spending, as we’ve been discussing, including here.
In short, there’s minimal hope for the moment that we’re about to turn the corner and return to the glory days of 2007, when conspicuous consumption created a powerful tailwind for bull markets in just about everything.
Why, then, do we continue to talk about the technical end of the recession? In previous posts, we talked about why we’re inclined to distinguish between a formal end to the recession but one without clear and obvious improvement on Main Street anytime soon—see our posts here and here, for instance. As we wrote back in mid-May, “the official end of the recession isn’t likely to bring a material change in the discouraging economic news. The technical ends of recessions still bring plenty of pain for Joe Sixpack in the ensuing quarters. The fact that this recession is the deepest since the Great Depression suggests that the recovery period, whenever it commences, will be unusually slow and sluggish. And that’s the optimistic outlook!”
Today’s jobs report certainly doesn’t inspire us to change our view. At the same time, there’s still reason to think that when the NBER gets around to dating the recession’s end, it’ll be sometime in the next several months. One reason for adopting that optimistic outlook is the weekly trend in new claims for jobless benefits. As we explained in March, the historical record for this data series suggests that new unemployment claims peak concurrently or slightly ahead of the NBER’s terminal dates of recessions over the past 40 years. On that point, today’s update on jobless claims—for the week through June 27—report a total of 614,000. That’s well below the peak so far of 674,000, set back for the week through March 28. In short, the trend in jobless claims is still signaling the recession’s end in the foreseeable future.
To be sure, that’s no guarantee. What’s been true in the past isn’t always true in the future. But there are other indicators—low interest rates, for instance—that, when considered in context with jobless claims, suggest that the technical finale to the recession may be near.
Even if that’s true, there’s still plenty of reason to remain humble on the near-term outlook for the economy. As today’s employment report reminds, the labor market is still quite weak. That’s not necessarily surprising, since employment is a lagging indicator and so positive net jobs growth tends to arrive late to newly minted cycles of growth. That tends to be true even in mild recessions; the fact that this is the deepest pullback since the Great Depression only emphasizes the point.
The bottom line is that while we continue to cautiously anticipate the end of the recession, we’re still reluctant to predict the start of economic growth worthy of the name. The interim between the two—an economic no-man’s land, if you will—threatens to run on for longer than usual in this cycle. Therein lies the main challenge that awaits, and it’s only just begun.