May’s sharp fall in jobless numbers added to the greenness of the ‘recovery’ (or less bad) thesis; overnight June’s unemployment figures were so awful that they could have stunted at least, the wavering shoots. Instead of around 350,000 to 360,000 losses forecast by the market, the actual figure was a gut crunching 467,000, with the unemployment rate edging up to 9.5% as more and more people stopped looking for work.
Markets tanked by between 2% and 3% in Europe and the US, currencies fell as the US dollar rose and commodities lost ground, led by oil.
The figures seemingly confirmed the feeling gnawing at the confidence of markets, that the rebound since March was overdone and things were not ‘that’ good. In some respects it’s a mirror of the rebound a year ago as markets settled after the rescue of Bear Stearns. We know that ended in tears as the financial system shuddered in August to October and came close to collapse.
The stimulus from the US Government is still working its way through the economy and demand has been supported mostly by the Fed’s rate cuts (last year’s smaller stimulus) and the trillions of dollars handed out to banks and other financial groups. Without that spending and support, the US economy would still be in freefall today and we in Australia would be falling in its wake.
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Thanks to the trillions of dollars of support and spending stimulus around the world, we won’t go there, but it’s increasingly looking like we would zoom out of recession any time soon, especially in the US.
The Financial Times wondered this week why, 19 months into the recession in the US, why there were no genuine signs of the economy recovering, no stats showing unambiguously that things were on the improve.
That was about Wednesday’s survey of US manufacturing conditions which showed a small rise in June, of 45 in spite of such levels remaining consistent with a shrinking economy.
“But a peek beneath the headlines reveals that manufacturers are far from cosy,” Lex observed
And the accuracy of that observation was confirmed not only by the US figures, but by the latest employment figures for Europe where the rate is now at a 10 year high for the 16 nation eurozone. In the US nothing is getting better, it’s only getting less worse (excuse that atrocity). Even if unemployment is a lagging indicator, such a sharp rise of 140,000 or more (depending on your forecast) in June from May’s lowered figure, was a shock.
The US Labor Department reported that the June unemployed rise of 467,000, (a 26 year high) was the worst loss for the past four months, ending what was hoped to be a trend of moderating job losses. The unemployment rate of 9.5%, was up slightly from the 9.4% rate of May and the highest since 1983.
The department said job losses were widespread across the major industry sectors, with large declines occurring in manufacturing, professional and business services, and construction. The steepest declines in services, which fell 244,000 after a 107,000 drop in May; professional and business services fell 118,000, while government employment fell 52,000 (They have been very strong for months now). Manufacturing was one of the few sectors to show a smaller drop in June, falling 136,000 after a 156,000 slump in May. (That put paid to early claims the bankruptcies of General Motors and Chrysler were major factors in the worse than expected figures).
The department said that job losses from April to June averaged 436,000 per month, compared with losses averaging 670,000 per month from November to March (Which is the good news part of the announcement).
But since the recession began in December 2007, 6.5 million jobs have been lost.
Then there was the sting in the tail of the report for retailers and alike: the wages of US workers are stagnating. Average hourly earnings were flat at $US18.53 in June, (Earnings are up 2.7% in the past year to June after being up 3.1% in the year to May). Average weekly earnings have risen by only 0.9%, reflecting a decline in the average workweek in the US in that time .
The average workweek fell six minutes to 33.0 hours, the lowest ever recorded in the series which started in 1964. Hours worked fell 0.8%. (But rose slightly in manufacturing).
But there was some good news in the US yesterday; new orders for manufactured goods to US factories rose by 1.2% in May, far better than the 0.8% forecast from the market. Non-durable goods orders (plastic, wood paper and packaging etc) rose 0.8%, which was the best for months. Leaving out plane orders, overall factory orders rose 0.8%, the best performance since June 2008. However inventories held by manufacturers are still falling. But the jobs figures squelched any optimism.
In Europe, unemployment in the 16 countries using the euro climbed to a 10-year high of 9.5% in May after 273,000 jobs were lost across the zone. It was the highest level of unemployment since May 1999, the European Union’s Eurostat data agency estimated. The May unemployment rate was up from 9.3 % in April and 7.4% in May of last year.
In the 27-nation EU the unemployment rate rose in May to 8.9%, the highest level since June 2005 with 385,000 jobs were lost. Eurostat estimated that in total 21.5 million people were unemployed across the EU in May, of which 15.0 million were in the euro area.
“Among the Member States, the lowest unemployment rates were recorded in the Netherlands (3.2%) and Austria (4.3%), and the highest rates in Spain (18.7%), Latvia (16.3%) and Estonia (15.6%). “Compared with a year ago, all Member States recorded an increase in their unemployment rate. The lowest increases were observed in Germany (7.4% to 7.7%) and the Netherlands (2.8% to 3.2%). The highest increases were registered in Estonia (3.9% to 15.6%), Latvia (6.1% to 16.3%) and Lithuania (4.7% to 14.3%),” Eurostat reported. In Ireland the jobless rate hit 11.9%.
Figures out also confirmed that deflation still grips the wider economy with producer prices falling by 0.2% in a preliminary report for June, after being down 0.9% in May. Meanwhile the European Central Bank left its main refinancing interest rate unchanged at a record low of 1.0% overnight Thursday, as expected by the market.