Labour Markets
Nonfarm payroll employment in the US fell by 159,000 jobs in September, according to the BLS, the largest percentage decline for a single month since 2003. Non
farm payrolls have now contracted for nine consecutive months, something that has never happened without a recession being under way, at least since World War II. The rate of decline in payrolls has not been as bad as it was during the worst parts of the past five US recessions, but the rate of decline has been accelerating lately.
Similarly, employment in durable-goods manufacturing had been holding up in 2008 relative to the sharp declines that can normally arise in a recession, but the declines in August and September 2008 in that sector were especially pronounced. The rate of decline in temporary help employment--a good leading indicator--was little changed in recent months, after falling at an accelerating pace in late 2007 and early 2008.
In the employment report last Friday, the BLS also reported its preliminary estimate for the annual benchmark revision to the payroll data. This revision is made annually as the BLS adjusts its sample results to "universe" data that is only available with a lag. In light of the outsized positive contribution coming from the BLS' "birth-death adjustment" (a statistical technique used to try to estimate payroll trends outside of the payroll survey sample) it was reasonable to expect a significant downward revision this year. In turn, the employment component of the ISM purchasing manager surveys has been coming in consistent with its 2001 recession levels, while the BLS payroll employment declines have been less than one-half the rate of decline in the 2001 recession. But the BLS benchmark revision announced last week was actually very small, almost a nonevent. This may be due in part to the fact that the revision goes to March data, and we've seen worsening conditions since then.
Among other informative private-sector employment indicators, the Challenger, Gray and Christmas review of layoff announcements indicated a 7% increase in job cuts from August to September alone, and the September total was a whopping 33% above the September 2007 total.
Manufacturing Activity
The overall index for the ISM Manufacturing Survey--a survey of purchasing managers--fell sharply from August (49.9) to September (43.5). The September reading was the worst month since October 2001, amid the 2001 recession. The ISM numbers had been holding up well relative to what normally arises during a recession, at least until the latest report.
The ISM Index is a diffusion index, based on a simple equation taking the percent of respondents reporting increased activity and adding that to one-half the percent reporting activity is unchanged. An index reading of 50 is roughly consistent with unchanged overall activity, with readings below that suggestive of contraction. But the decline in the index from August to September 2008--from 49.9 to 43.5--was one of the largest single monthly declines since the harsh 1980 recession.
Consumer
US light vehicle sales had been falling at an accelerating pace this year, and the September sales reports from individual manufacturers remained bleak. The seasonally adjusted annual rate for September came in at 12.5 million vehicles. This sales rate is well below the worst months of the 2001 recession, and we've had some of the weakest results since the early 1990s.
The Conference Board's survey of consumers indicated that US consumer confidence flattened out at recessionary levels in recent months, but the latest survey (for September) was concluded before the turbulent conditions in financial markets in recent weeks, and it seems reasonable to expect worse results in this survey and the University of Michigan's consumer survey in the weeks ahead.
Housing
The Mortgage Bankers Association reported that mortgage applications plunged in the latest reporting week in the US, for home purchases as well as refinancings. The S&P/Case-Shiller Index of home prices in 20 major metropolitan areas fell at a faster rate in July than in previous months.
Inflation
In welcome news in an otherwise bleak-to-scary news week, the prices-paid components of the US national purchasing managers' surveys have fallen back significantly in recent months. A moderating inflation picture may provide greater latitude for monetary and fiscal policy to address the weakening economy, other things being equal. Other things are certainly not equal, however, and government solutions for the developing financial crisis remain worthy of monitoring, and scrutiny.
Bill Bergman is a senior stock analyst with Morningstar. He served as a research associate with William Blair for five years, as an economist and senior financial markets policy analyst for the Federal Reserve Bank of Chicago for 13 years, and as an economist and director of the Summer Fellowship Program for the American Institute for Economic Research.
