Some More On Today's Gruesome Unemployment Numbers

Despite the schizo market action yet again (market is up because yen is down, yen is down because market is up), we wanted to go back to today's deplorable unemployment number. While the people who still have jobs seems to be more productive measured in some curious output per hour metric that the government is all over these days (probably measured by amount of blogs people read per hour when they should be focusing on stupid powerpoint presentations) Goldman has broken down the facts with no rose-colored glasses. We agree 100%.

BOTTOM LINE:

Another jump in claims shows continued deterioration in the labor market (though not directly relevant to tomorrow's payroll report) while companies managed even larger gains in output per hour worked than expected from those who remained on the job.

KEY NUMBERS

Initial claims +35K in week ended Jan 31 to 626K vs. median forecast 580K.Continuing claims +20K in week ended Jan 24 to 4.788 million. Nonfarm productivity +3.2% in Q4 (qoq, annual rate, +2.7% yoy) vs GS +2.5%, median +1.5%.Unit labor costs +1.8% in Q4 (qoq, annual rate, +0.7% yoy) vs GS +4.5%, median +2.9%.

MAIN POINTS

1. Initial jobless claims show that the labor market continues to deteriorate, setting a new 26-year high. Because the payroll survey for tomorrow's report was conducted earlier in the month, the claims figure has no direct bearing on our -475K estimate for payroll losses in January. The only possible silver lining in this report – and it’s not much of one – is that continuing claims showed only a moderate increase from a base that was revised down slightly. However, they remain extremely high and also do not incorporate the 626K new claimants.

2. Productivity rose substantially more than expected despite the downward spiral in demand and output, as firms squeezed more output out of the workforce that remained on the job. The surprise relative to our expected 2.5% increase was in the index of hours worked, which suffered a stunning 8.4% annualized setback. At the same time, total compensation was quite a bit weaker than embedded in our (revised) estimate for unit labor costs. The low trend in unit labor costs (less than 1%) speaks to the ongoing disinflation (ed. we assume this is roughly equivalent with deflation) in the US economy.