Are the rate cuts working yet? Greenspan
The Labor Department's June unemployment report that hit the Street on Friday morning wasn't as bad as forecasters were expecting — 4.5 percent, back to where it was in April, instead of the 4.6 percent consensus — but it's still a tenth-of-a-point uptick from the 4.4 percent registered in May. And way up from the three-decade low of 3.9 percent hit in several months last year.
That makes May, the rosiest economic month in a long, long while — the one that likely talked Alan Greenspan out of another 50-basis-point rate cut June 27 — look like an aberration in a second quarter that's sure to be the worst we've seen since the last recession a decade ago.
In April, cost-fearing businesses slashed their payrolls by 165,000 jobs; in May, the number edged up by 8,000. In June? Slashing again, by 114,000. Electronic equipment makers cut 31,000 jobs. Industrial machinery makers sliced 22,000 positions. Even the service sector, where most Americans work, added only 5,000 jobs, the weakest showing since an outright shedding of 15,000 jobs in August 2000.
All those numbers that added up to 4.5 percent have — as the traders say — growth potential. The unemployment number is what's fancily known as a lagging economic indicator, which means it tells us mostly what businesses were doing in April and May — namely, announcing they would be laying off workers to cut costs, some of whom are only now actually out of work.
So here's some June news that came out yesterday: Job-cut announcements soared by 124,852, up 56 percent from May's 80,140 and a whopping year-over-year hike of 624 percent from June 2000's very ordinary 17,241, according to a survey by outplacement firm Challenger, Gray and Christmas.
Announced layoffs, of which most corporate employees have at least second-hand knowledge by now, usually come with a few last weeks on the job and a few more weeks (sometimes many more) in severance. Most of June's "layoffs" won't be into the macro-economically worrisome phase — the part where they're sitting around in their pajamas not spending money — for quite some time, and it could be months before they actually show up on the unemployment rolls.
Of course it'll probably be longer than that — just take a look at the earnings reports starting to come out this week — before companies are profitable enough to start hiring all those workers back. The economy isn't so bad that there isn't plenty of job "churning" (quickly getting a new job), especially in the high-tech sector, but it certainly isn't so good that nobody won't spend the summer (and beyond) in their PJs.
Tick, tick, tick.
The unemployment number lags for another reason: Even people still wearing suits (or overalls or uniforms) read about it in the paper. The big concern about rising unemployment in zero-growth days like these is consumer spending, which accounts for two-thirds of economic activity and will be the difference between a slowdown (what we're in now) and a statistical recession. Someone out of work is rather likely to tighten his or her belt — so is someone who's worried that they'll be out of work someday soon.
Of course U.S. consumers, the lifeguards of not only this slowdown but the one that never quite arrived in 1997 when the rest of the world was drowning, have proven heroically resilient of late. Home and car sales keep bouncing back, and retail sales have held up. While the businesses continue to get their supply-and-demand and profit-and-loss acts together well into the fall, the consumers will have to keep the economy above water in the meantime.
This isn't a boom-or-bust gamble; the fact is the U.S. economy has probably spent the April-May-June quarter at, near or below zero growth. We'll find out in a month or so (lagging indicator again), at which point the recession watch, technically defined as two consecutive quarters of negative growth, has officially begun.
They say it won't last long, whether it comes or not — the business outlook is expected to brighten by year's end, which would make that recession a two-quarter malaise at most. But then again, the R-word is another headline with its own mood-altering power. Another lagging indicator that can cast its shadow forward in the mind of the all-important consumer.
Wall Street, which reeled at Friday's open, will have mixed feelings. There'll be some moaning about the current batch of corporate earnings reports that have kept this labor market loosening. There'll be some worry that Greenspan has slowed down his rate-cut regime just at the time he needed to keep the pedal to the metal — and some perverse optimism that a number like this will force him to speed up again.
But they're also self-centered. For them, the unemployment number is a symptom of their disease — the business-to-business sales and investments that must recover before the economy does. That process is still a long tunnel, but some folks swear they're starting to see the long-term light.
Long-term isn't the problem for the rest of us — it's the time in between now and then that the larger economy needs to keep its spirits up. For Wall Street, the unemployment number is still just a symptom. The problem for the rest of us is if it becomes a cause — of lower consumer spending, causing more slowing down, causing more job cuts — and the higher it creeps up the closer we get to the tipping point.
Tick, tick, tick.