Pink Slips and Recessions

The biggest news of last week was the national employment report for August. The BLS reported that nonfarm payroll employment declined by 84,000 jobs. This was the eighth consecutive monthly decline, and about in line with the average monthly rate over those eight months.

Since World War II, we've never had a string of eight consecutive declines like this without a recession being under way. Within the overall payroll totals, employment in the temporary help sector (a good leading indicator) continued to decline, and at an accelerating pace.

In the separate household survey, the unemployment rate rose sharply, from 5.7% in July to 6.1% in August. The increase in the unemployment rate in the last eight months has also been consistent with its behavior in past recessions.

The household survey provides an estimate for total employment as well as unemployment. This figure is a little more volatile than the payroll employment total on a monthly basis, but the payroll data estimates can be subject to sometimes-marked annual revisions well after they are initially reported, particularly around economic turning points. The household survey total employment level peaked in November last year, while the payroll total peaked in December 2007. Since then, the household figure has declined about twice as fast as the payroll data, suggesting along with other evidence that we may have a downward revision to the payroll data for 2008. In each of the past two years, the BLS has made a preliminary announcement of the annual revision in the October report on September employment results. If that practice continues, we will get more news next month.

Other News
Employment has been declining, housing starts have been crashing, and consumer spending and confidence are markedly weak, but business activity in general has been holding up better than it has in past recessions. The results from the national purchasing managers' surveys remain stubbornly resistant to the weakness elsewhere in the economy, both in the manufacturing and services sectors. In the Institute for Supply Management's reports last week, the overall purchasing manager survey indexes for August came in close to the neutral 50 reading. These are diffusion indexes, with the share of respondents reporting increased activity (in production, new orders, employment, and some other indicators) added to one-half of the percentage reporting little change, with the results weighted to arrive at an overall index number. It's a simple index, but the simplicity has proven reliable in the past, and the latest results are suggesting neither expansion nor contraction overall in manufacturing and services. International growth has been bolstering U.S. corporate results, but recent slowing in overseas growth and a fading tailwind from the falling U.S. dollar may provide cautionary notes on that score.