Unemployment flies in the face of green shoots
IN THE good old days of open outcry trading the Liffe market was at its busiest between 1.29pm and 1.31pm on the first Friday of every month. This was when several thousand of us derivatives traders and brokers would cram into the pits ready for the release of the “Daddy of all Data” – the non-farm payroll. It was sometimes a time of frenetic trading, of testosterone-fuelled bun-fights and, to be honest, as often as not, a big anti-climax.
Now as I sit here several years later, I’ve swapped my garish trading jacket for a more sedate journalistic lifestyle. And yet one thing remains constant. For traders, investors and anyone interested in the direction of markets, the once monthly US payroll data remains the most eagerly anticipated data of the month.
This Friday we could see the unemployment rate rising uncomfortably towards the 10 per cent level and beyond, confirming the deep mire the world’s largest economy remains in.
And yet amongst economists there is an offhand attitude towards the figure. The fashion is for economists to dismiss jobs data as irrelevant, or more accurately, as “lagging”.
Lagging, as opposed to “leading” indicators, are apparently less relevant as they are ones which follow an event as they do not anticipate future trends but merely confirm those we are already in. Leading indicators are supposed to do just that – lead. These favoured measures include the likes of inflation-adjusted money supply, consumer sentiment and new orders for capital goods. But I’m finding this attitude increasingly hard to swallow. Surely current unemployment trends point to further economic troubles ahead and fly in the face of a growing desire for policy makers and economists to spot “Green Shoots”.
How can rising unemployment not be a great big warning for the US and beyond when around 70 per cent of the country’s GDP is accounted for by consumer spending? If people aren’t working, they won’t be spending.
Thankfully some experts are a voice of sanity. Mohamed El-Erian, CEO of Pimco, the world’s biggest bond fund-manager, agrees that in a de-leveraging economy conventional logic should be turned on its head.
He told Reuters: “The spike in unemployment rate to 9.4 per cent (US), by impacting consumers’ enthusiasm, will act as a headwind to a sharp recovery…”.
On this side of the Atlantic, unemployment is rising at a nasty rate. Last month the jobless number reached 2.26m, or 7.2 per cent. This is set to get way worse before a turnaround. While optimists are looking at a peak of 3m, pessimists see 4m workers unemployed. Neither scenario looks particularly encouraging.
So while policy-makers continue to speak of green shoots, those of us on Planet Earth will wait a little longer before calling the turn.
Steve Sedgwick is a presenter on Squawk Box Europe each weekday on CNBC.