JVB-BSullivan-Econ-Comment-100509

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Broker Dealer / Institutional / Advisor Use Only October 5, 2009 ABOUT You can’t spin this one BILL SULLIVAN The financial markets reacted calmly to William V. Sullivan, Jr. the average monthly decline in household serves as Chief Economist the news that non-farm payrolls fell more employment registered 690,000 workers. at JVB Financial Group, than expected during the month of Conceivably, even more disappointing working closely with the September. Indeed, during last Friday’s was the surprising weakness in the hours firm’s trading desk, trading session, the prices of long-term worked series. The private workweek fell providing analysis and commentary on the U.S. Treasury debt actually declined while the one-tenth of an hour to 33.0 hours, the all-economy and the financial broad equity averages more or less held their time low for this measure that was markets. Among his duties own. Based upon that performance, it is established during the second quarter. Both are authoring a weekly quite apparent that investors effectively the manufacturing workweek and overtime report on credit market discounted in advance the decline in jobs trends and maintaining a hours in the factory sector fell as well, regular schedule of that was reported for the previous month. pointing toward broad-based weakness for conference calls that focus While that judgment per se may prove the economy during September. At the same on interest rate accurate, we seriously doubt ...

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• Publié par: Sior
• Nombre de lectures: 11
• Langue: English

Extrait

The financial markets reacted calmly to

the news that non-farm payrolls fell more

than

expected

during

the

month

of

September. Indeed, during last Friday’s

trading session, the prices of long-term

Treasury debt actually declined while the

broad equity averages more or less held their

own. Based upon that performance, it is

quite apparent that investors effectively

discounted in advance the decline in jobs

that was reported for the previous month.

While that judgment per se may prove

accurate, we seriously doubt that security

valuations

fully

reflect

the

degree

of

weakness that was evident in the labor force

as the third quarter came to a close. This

consideration is underscored when analytical

focus is directed toward other employment

statistics beyond the payroll data that are part

of the monthly report.

Even though the 263,000 decline in

non-farm payrolls was almost 100,000 above

consensus expectations, investors were still

comfortable with the outright contraction as

it fell well short of the monthly declines that

transpired earlier in the year. From that

perspective, the sense that the pace of job

losses was moderating was still preserved.

However,

the

alternate

measure

of

employment that is extracted from the

household

survey

reflected

a

different

picture. Specifically, civilian employment

tumbled by a historically large 785,000

individuals during September, suggesting that

overall labor market conditions remain as

severe as ever. Reinforcing the magnitude of

the September drop, in the half year period

following the Lehman Brothers bankruptcy,

the average monthly decline in household

employment registered 690,000 workers.

Conceivably, even more disappointing

was the surprising weakness in the hours

worked series.

The private workweek fell

one-tenth of an hour to 33.0 hours, the all-

time

low

for

this

measure

that

was

established during the second quarter. Both

the manufacturing workweek and overtime

hours in the factory sector fell as well,

pointing toward broad-based weakness for

the economy during September. At the same

time, average hourly earnings rose by just

one cent and, when coupled with the

shrinking workweek, it is very apparent most

American families once again experienced a

softening pattern in their wage and salary

growth right before the critical holiday

period.

Needless to say, the drop in non-farm

payrolls fails to communicate the devastating

conditions in the current labor market

regarding the ability to establish a career

position, ultimately a very important factor in

terms of buoying consumer sentiment.

Incredibly, full-time jobs dropped by another

814,000 individuals last month, pushing the

year-over-year decline in this series to 8.2

million workers. The unemployment rate for

full-time employees currently posts 10.7% or

nearly one-full percentage point above the

nationwide average. College graduates now

have a jobless rate of 4.9% or nearly double

the year-ago reading, a clear cut indication

that those individuals with the highest

academic credentials are also finding minimal

opportunities in the labor market at this

point in the economic cycle.

The same

(Continued on page 2)

You can’t spin this one

October 5, 2009

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William V. Sullivan, Jr.

serves as Chief Economist

at JVB Financial Group,

working closely with the

firm’s trading desk,

providing analysis and

commentary on the U.S.

economy and the financial

markets. Among his duties

are authoring a weekly

report on credit market

trends and maintaining a

regular schedule of

conference calls that focus

on interest rate

developments. He appears

frequently on Bloomberg TV

and is often quoted in

Barron’s.

Mr. Sullivan is the familiar

voice that JVB features on

our weekly conference call,

where he discusses the

economy and the events

that affect the marketplace.

He was previously

associated with Morgan

Stanley in New York City for

more than twenty years,

where he was an Executive

Director and a Senior

Economist in the firm’s

Retail Fixed Income

Division. Bill published a

widely quoted weekly letter

on the financial markets and

was a frequent guest

commentator on several

business networks,

including Bloomberg TV,

CNBC, and Fox News.

Mr. Sullivan received his

Bachelor of Arts Degree in

Economics from Fairfield

University.

Broker Dealer / Institutional / Advisor Use Only

situation applies to younger individuals seeking

employment as the teenage jobless rate has now

risen to 25.9%, up six full percentage points

from September, 2008.

The general belief within the Wall Street

community is that employment conditions are a

lagging indicator and that a recovery process is

now underway, despite the input on September

labor market activity. For sure, several business

cycles in the past may have performed in such a

fashion.

But the current contraction has no

precedent in the post- World War II period and,

against that backdrop, the prevailing weakness

in employment conditions should not be

ignored.

Augmenting the huge drop in full-

time jobs that has characterized the present

downturn, the nation unequivocally faces an

environment of chronic unemployment that is

likely to dampen household spirits for the

indefinite future. The average duration of

unemployment, which now totals 15.1 million

individuals, is 26.2 weeks, nearly eight weeks

above last year’s level.

The median duration

also continues its upward climb, registering 17.3

weeks as of last month. The lack of meaningful

employment opportunities prompted more than

800,000 people to withdraw from the labor

force in September. Obviously, lacking that

withdrawal, the nationwide unemployment rate

would have risen by more than one-tenth of a

percent during September. The fact that such a

huge reservoir of individuals are on the sidelines

now sets the stage for the overall jobless rate to

hit 10.0% by year-end and perhaps as high as

10.5% during the first half of 2010.

If the trajectory of jobs does weigh

heavily in favor of more losses, as appears to be

the case, the employment situation will prove to

be

a

leading

indicator

regarding

the

(Continued from page 1)

performance of the economy over the next few

quarters.

Not

only

will

individuals

be

confronting potential layoffs, but those who

remain on payrolls are likely to experience an

erosion in real take home pay.

In this

environment, discretionary spending by families

will be held in check, attention will be directed

toward debt reduction and the building of

liquidity reserves. Eventually, the message will

surface that the prospects for a self-sustaining

recovery process over the next year or so

remain very limited. Top line revenue growth

for many companies will fall well below the

optimistic expectations that are seemingly

reflected in today’s

financial

marketplace.

Moreover, in a setting of chronic joblessness

and limited earnings potential, the probabilities

seem to favor a consumer loan loss experience

that will exceed most forecasts as the fourth

quarter gets underway.

The maintenance of a moribund labor

market will have an important impact on policy-

making in the nation’s capitol.

A rising

unemployment rate should encourage the

Federal Reserve to sustain its accommodative

stance well into the future, pointing towards a

Fed funds target that remains at 25 basis points

through the opening quarters of 2010.

In

addition,

unless

a

turnaround

in

the

employment situation occurs more quickly than

expected, Congress may pursue another round

of fiscal stimulus. The need for more pump-

priming is made even more urgent by the

Congressional elections that will be held next

November.

■

William V. Sullivan, Jr.

Chief Economist

JVB Financial Group

October 5, 2009

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2700 N. Military Trail, Suite 200 / Boca Raton, FL 33431

[phone]

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www.jvbfinancial.com

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