by Calculated Risk on 9/04/2009 10:40:00 AM

A few more graphs based on the (un)employment report ...

Employment-Population Ratio

Click on graph for larger image in new window.

This graph show the employment-population ratio; this is the ratio of employed Americans to the adult population.

Note: the graph doesn't start at zero to better show the change.

The general upward trend from the early '60s was mostly due to women entering the workforce. As an example, in 1964 women were about 32% of the workforce, today the percentage is closer to 50%.

This measure fell in August to 59.2%, the lowest level since the early '80s. This also shows the weak recovery following the 2001 recession - and the current cliff diving!

Part Time for Economic Reasons

From the BLS report:

In August, the number of persons working part time for economic reasons was little changed at 9.1 million. These individuals indicated that they were working part time because their hours had been cut back or because they were unable to find a full-time job. The number of such workers rose sharply in the fall and winter but has been little changed since March.

The number of workers only able to find part time jobs (or have had their hours cut for economic reasons) is at 9.076 million. This is only slightly below the peak of 9.084 million in May.

Note: the U.S. population is significantly larger today (about 305 million) than in the early '80s (about 228 million) when the number of part time workers almost reached 7 million. That is the equivalent of about 9.3 million today, so population adjusted this is not quite a record.

Average Weekly Hours

From the BLS report:

In August, the average workweek for production and nonsupervisory workers on private nonfarm payrolls was unchanged at 33.1 hours. The manufacturing workweek and factory overtime also showed no change over the month (at 39.8 hours and 2.9 hours, respectively).

The average weekly hours has been declining since the early '60s, but usually falls faster during a recession. Average weekly hours worked has essentially been flat since March.

Some analyst look to an increase in this series as an indicator a recession is over. I guess they are still waiting.

Note: the graph doesn't start at zero to better show the change.

Earlier employment posts today:

Employment Report: 216K Jobs Lost, 9.7% Unemployment Rate for graphs of unemployment rate and a comparison to previous recessions.

Unemployment: Stress Tests, Unemployed over 26 Weeks, Diffusion Index

by Calculated Risk on 9/04/2009 09:40:00 AM

Note: earlier Employment post: Employment Report: 216K Jobs Lost, 9.7% Unemployment Rate . The earlier post includes a comparison to previous recessions.

Stress Test Scenarios

Click on graph for larger image in new window.

This graph shows the unemployment rate compared to the stress test economic scenarios on a quarterly basis as provided by the regulators to the banks (no link).

This is a quarterly forecast: the Unemployment Rate for Q3 is an average of July and August (rounded to 9.6%), and will probably move higher. Once again, the unemployment rate is already higher than the "more adverse" scenario.

Note also that the unemployment rate has already exceeded the peak of the "baseline scenario".

Unemployed over 26 Weeks

The DOL report yesterday showed seasonally adjusted insured unemployment at 6.2 million, down from a peak of about 6.9 million. This raises the question of how many unemployed workers have exhausted their regular unemployment benefits (Note: most are still receiving extended benefits, although this is about to change).

The monthly BLS report provides data on workers unemployed for 27 or more weeks, and here is a graph ...

The blue line is the number of workers unemployed for 27 weeks or more. The red line is the same data as a percent of the civilian workforce.

According to the BLS, there are almost 5.0 million workers who have been unemployed for more than 26 weeks (and still want a job). This is 3.2% of the civilian workforce.

The good news is there wasn't much of an increase from July. The bad news is many of these 5 million long term unemployed will start exhausting their extended unemployment benefits soon. According to the projections by the National Employment Law Project about 0.5 million will have exhausted their benefits by the end of this month (September) and about 1.5 million by the end of the year.

In California alone, from the O.C. Register: "an estimated 143,000 unemployed workers in California [exhausted] their jobless benefits by Sept. 1, according to new figures released by the state Employment Development Department".

Diffusion Index

Here is a look at how "widespread" the job losses are using the employment diffusion index from the BLS.

Although job losses continued in many of the major industry sectors in August, the declines have moderated in recent months.
BLS, August Employment Report

The BLS diffusion index is a measure of how widespread changes in employment are. Some people think it measures the percent of industries increasing employment, but that isn't quite correct.

From the BLS handbook:

The diffusion indexes for private nonfarm payroll employment are based on estimates for 278 industries, while the manufacturing indexes are based on estimates for 84 industries. Each component series is assigned a value of 0, 50, or 100 percent, depending on whether its employment showed a decrease, no change, or an increase over a given period. The average (mean) value is then calculated, and this percent is the diffusion index number.

Think of this as a measure of how widespread the job losses are across industries. The further from 50 (above or below), the more widespread the job losses or gains reported by the BLS.

Before last Summer, the all industries employment diffusion index was in the 40s, suggesting that job losses were limited to a few industries. However starting in September the diffusion index plummeted. In March, the index hit 19.6, suggesting job losses were very widespread. The index has recovered since then to 35.2 in August, suggesting job losses are not as widespread across industries as early this year - but losses continue in many industries.

The manufacturing diffusion index fell even further, from 40 in May 2008 to just 6 in January 2009. The manufacturing index has rebounded to 29.5 in August, indicating improvement, but still fairly widespread job losses across manufacturing industries.

by Calculated Risk on 9/04/2009 08:30:00 AM

From the BLS:

Nonfarm payroll employment continued to decline in August (-216,000), and the unemployment rate rose to 9.7 percent, the U.S. Bureau of Labor Statistics reported today. Although job losses continued in many of the major industry sectors in August, the declines have moderated in recent months.

Click on graph for larger image.

This graph shows the unemployment rate and the year over year change in employment vs. recessions.

Nonfarm payrolls decreased by 216,000 in August. The economy has lost almost 5.83 million jobs over the last year, and 6.93 million jobs during the 20 consecutive months of job losses.

The unemployment rate increased to 9.7 percent. This is the highest unemployment rate in 26 years.

Year over year employment is strongly negative.

The second graph shows the job losses from the start of the employment recession, in percentage terms (as opposed to the number of jobs lost).

For the current recession, employment peaked in December 2007, and this recession was a slow starter (in terms of job losses and declines in GDP).

However job losses have really picked up over the last year, and the current recession is now the 2nd worst recession since WWII in percentage terms (and the 1948 recession recovered very quickly) - and also in terms of the unemployment rate (only early '80s recession was worse).

The economy is still losing jobs at about a 2.6 million annual rate, and the unemployment rate will probably be above 10% soon. This is still a weak employment report - just not as bad as earlier this year. Much more to come ...

by Calculated Risk on 9/03/2009 09:25:00 PM

John Burns Consulting sent out a note today titled: FHA Likely To Be The Next Shoe To Drop

"The FHA's aggressive lending programs have continued throughout the housing downturn, causing its market share of the mortgage industry to grow from 2% in 2005 to 23% today. ... The FHA insurance fund, however, is likely running dry. ...

While almost all of the experts believe that Congress would support the FHA if necessary (it's currently self-funded), we wonder if FHA officials will be under pressure to continue tightening their lending policies, which currently allow 96.5% mortgages to people with 600 FICO scores. ... Claims against the insurance fund have climbed, with roughly 7% of all FHA-insured loans now delinquent.

And from the WSJ: Loan Losses Spark Concern Over FHA

The Federal Housing Administration ... is in danger of seeing its reserves fall below the level demanded by Congress, according to government officials, in a development that could raise concerns about whether the agency needs a taxpayer bailout.
...
Resulting FHA losses are offset by premiums paid by borrowers. Federal law says the FHA must maintain, after expected losses, reserves equal to at least 2% of the loans insured by the agency. The ratio last year was around 3%, down from 6.4% in 2007.
...
Officials said as recently as May that they didn't expect to fall below the 2% limit, but home price declines have exceeded those used to model their expected losses. Given the pace of those declines, "there is no way they will make the 2%" if the current study follows last year's methodology, says [Thomas Lawler, an independent housing economist].

Based on the issues at the FHA, the end of the tax credit, and more supply coming on the market, Burns concluded that "housing could see another leg down later this year or early next year":

[W]atch the growing controversy regarding the FHA very carefully. The decisions made to allow the FHA to continue lending will have a huge impact on the housing market, particularly when so few entry-level buyers have a substantial down payment.

by Calculated Risk on 9/03/2009 08:09:00 PM

From Rolfe Winkler at Reuters: U.S. junk bond default rate rises to 10.2 pct -S&P

The U.S. junk bond default rate rose to 10.2 percent in August from 9.4 percent in July ... Standard & Poor's data showed on Thursday.

The default rate is expected to rise to 13.9 percent by July 2010 and could reach as high as 18 percent if economic conditions are worse than expected, S&P said in a statement.
...
In another sign of corporate distress, the rating agency has downgraded $2.9 trillion of company debt year to date, up from $1.9 trillion in the same period last year.

Bad loans everywhere ...