Dark signs in the jobless numbers
Employers have less work for the people still on the job, suggesting bigger layoffs ahead.
NEW YORK (Fortune) -- The employment report for November was bad enough on its face, showing a labor-market picture of nearly complete devastation.
The 533,000 job losses last month were the most since December 1974, while the numbers for October and September were revised to show an additional 200,000 jobs lost.
Since the beginning of the year, the economy has shed 1.9 million jobs, with nearly 1.3 million of those losses coming in just the last three months.
But a closer look at the numbers shows even more dark signs. The losses were widespread across the economy: In the last three months alone, manufacturing has lost 258,000 jobs, while the declines in construction and retail trade have totaled 201,000 and 229,000 respectively.
In fact, the reported 85,000 decline in manufacturing jobs last month alone would have been even bleaker if it weren't for 27,000 striking machinists at Boeing going back to work.
The numbers offer hard evidence that the erosion in labor markets has gathered steam at an alarming place since the financial-market crisis erupted in September.
And the numbers provide strong evidence that employers are cutting back quickly on their use of workers still on the job: The average workweek dropped to 33.5 hours, its lowest level since the inception of that measure in 1964, and overtime hours declined as well.
That portends even more aggressive layoffs in the coming months, since economic conditions are unlikely to show any improvement that would make employers more willing to hold on to their existing workers. So December is likely to be another brutal month for the employment picture.
The increase in the actual unemployment rate for November, to 6.7%, up from 6.5% in October, may seem relatively mild given the numbers of job cuts. The reason is that the unemployment rate is the product of a separate household survey and is determined not only by how many people were unemployed during the month but also by the size of the civilian labor force.
In November, the household survey found that employment fell by 673,000, but the size of the civilian labor force also dropped by 422,000, which helped contain the rise in the unemployment rate.
The temptation is always to attribute such unexpected drops to discouraged workers who stopped looking for work and therefore are no longer considered part of the labor force, at least for purposes of the survey.
However, that explanation may not be quite valid here, as the labor markets only started deteriorating significantly in the past few months, a period probably not long enough to cause a surge in discouraged workers in November. It seems more likely that last month's drop in the size of the labor force was one of the notorious quirks of U.S. employment statistics, which tend to get ironed out over a number of months.
The bottom line is that we are set for a sharp rise in the unemployment rate over the December-January period to above 7%. We should be looking for the unemployment rate to hit at least 8% over the next six to nine months, but the actual peak in the rate will likely be higher still in this cycle, as it is generally considered a lagging indicator, meaning that it continues to rise even after the economy starts recovering from a recession.
To complete the picture of a uniformly bleak outlook, the employment data contained a very sizable decline in total hours worked last month (-0.9%), which will have a strong connection to fourth-quarter GDP.
It now looks like the economy will contract at a rate of as much as 5% in this quarter, which underscores that point that can no longer be ignored: This is not a run-of-the-mill recession but a historic event.