This article is a guest contribution by David Rosenberg, Chief Market Economist, Gluskin Sheff.
A few readers have taken us to task for our reliance on the U.S. Household Employment Survey given that the steep declines in the past few months were skewed by the removal of the Census workers from the data. There is indeed some truth to that criticism but we went back and adjusted the Household employment numbers by netting out the federal government segment from the Payroll survey, the results are the same. Excluding non-postal government workers, Household employment fell 446k in May, 80k in June and by 11k in July. That is a total loss of 537k and again, history shows that when the household employment is down three months in a row, we are already in recession or about to head into one 98% of the time. That has not changed and still applies to the current backdrop.
What is playing a key role in dragging these numbers lower is not the reversal of the Census hirings as much as the steady declines we are seeing in self-employment — the “entrepreneurial” part of the jobs picture. The number of job losses here has exceeded 130,000 in just the past three months and, at 9.64 million, the level is down to the lowest it has been since November 1987.
The ECRI leading index did improve again in the latest week, to -9.8%, but the die has been cast and the damage has been done. It has never before hit these negative levels without the economy heading into a downturn. In addition, the Chicago Fed’s National Activity Index never gave the green light that the recession that began in December 2007 ever really ended despite the inventory pickup and concomitant manufacturing rebound we saw. This may be why the Nation Bureau of Economic Research (NBER) has dragged its heels in making any proclamation.
As former Labor Secretary Robert Reich said over the weekend: “It’s nonsense to think of the economy heading downward again into a double-dip recession when most Americans never emerged from the first dip. We're still in one long Big Dipper.”
We would tend to agree with this assessment. Others are beginning to fall into line even though this remains a minority view — see Double Dip? A Tipping Point May Be Near on page 4 of the Sunday NYT. Even the folks at the ECRI are starting to sound a bit nervous after months of dismissing the forecasting relevance of their own leading index — Lakshman said “We are at a very critical moment in the business cycle” though he added that he would not know until the fall as to whether “we’re dipping back into recession”?
We recently received some data underscoring how the business cycle is now evolving — all four components: Industrial production almost stagnated in June, with a mere 0.1% gain, ditto for real personal income, excluding transfers (+0.5% in April, to +0.4% in May, to +0.1% in June). As we said before, what the quarterly profit data miss is the huge deceleration we saw from April to June and is continuing through the summer. Employment fell 131,000 (payroll survey) and we just received data on business sales — down 0.6% in June after a 1.2% slide in May and +0.6% in April.
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