Today figures for September were reported better than expected. Unemployment is still a dismal 9.1%, but September jobs added was higher than expected, as well as, July and August numbers were revised upwards.
The debate among analysts and commentators began quickly after the data was released. Some believe the numbers are a much needed boost of confidence that could increase business spending, some believe the numbers are still not enough to keep us from falling into a double dip recession. So what do the numbers really tell us?
Month to month trends in employment figures can sometimes be volatile even in strong markets. And absolute values are not nearly as important and changes in value. What we really want to know is what direction the economy is headed. Yes; we all know absolute values are bad. The thing we should be looking for is long term trends. Are employment figures consistent with a recovering economy or with a double dip recession?
I think the following graph can provide a fairly good indication...
In the graph I have charted annual Nonfarm Job Gains/Losses and Annual Initial Unemployment Claims. Intuitively we would think that job gains would increase and initial claims would decrease during a recovery. This is exactly what we are seeing. I made some pretty subjective assumptions for the last 3 months of 2011, but I think they are fair. I kept initial claims at 400,000 a week. The number has hovered around 400,000 for a while now and has trended towards getting under 400,000 so I think this is reasonable. For Job Gains I calculated two assumptions. The blue line assumes the last 3 months will add the same number of jobs as the last 3 months in 2010. The red line assumes only 30,000 jobs will be added in each of the last 3 months. I think both these assumptions are very conservative considering 2011 has added more jobs in 7 of the 9 months so far compared to 2010.
Understandably the numbers are not good enough yet. This is evidenced by the unemployment rate staying at 9.1%. The economy is not yet adding enough jobs or keeping enough jobs to move this figure down. But what does the chart say about the direction of the economy? Employment is a lagging indicator, so does the graph say we are currently in a slow recovery or in a double dip? You know what I think, so I will let you decide.....
