The rate of U.S. unemployment rose during May to 9.4 percent — the highest since the 1980-1982 recession, and half a point higher than April’s 8.9 percent. But the 345,000 jobs lost during the month are well below the half-million economists had predicted, and the rate of new lost jobs is slowing. Unemployment will likely go higher, because we have yet to feel the full impact of auto plant closings, but the math says the trend is improving. So why did Treasury bonds sell off Friday?
U.S. job losses peaked in January, and at 345,000 for May, new jobs lost were only half of the average of the last six months, reports the Bureau of Labor Statistics. Economists had forecast only a small decrease from April, to 520,000.
Jobs in services industries were hurt less than in April, but traditional manufacturing losses are still high, at 156,000 for the month. The BLS pointed out that employment in autos and parts is now half of the peak it hit in 2000.
Here’s a graph of recent job losses.
For those who like to conjure up patterns in data, as I do, a nice symmetrical recovery would present 350,000 or so job losses for another month or two, then tail off to under 200,000 for another eight or nine months, and net job creation would resume in January or February 2010. We’re at 17 months of net losses already, so that would make 25 months of job losses in this recession.
The really-bad recession of 1981-1982 produced job losses for 17 months, and lost jobs persisted in the 2000 recession until 2003 — 25 months. But the employment impact of this recession will be both long and deep. Look at this set of graphs of the last three recessions plus the current one, which are all on the same scale.
From this view, the 1990 and 2000 recessions (the two in the middle) were small potatoes — lost jobs were never as high as 400,000 a month. And only one month was that high during the severe 1980-1982 slump (at the top): the unemployment rate turned out to be so high, 10.8 percent at the top, because of the “double dip” phenomenon.
Friday’s employment report pleased the stock market: the S&P 500 was a quarter of a percent higher at about noon. Treasury bonds, however, were lower, about a point for the five, seven, 10 and 30 year maturities.
There are two ways to look at this change in bond market sentiment. The optimist would say that investors are selling Treasuries because the slowdown in unemployment brings a profit recovery that much closer, and makes opportunities in riskier assets - stocks and corporate bonds - more attractive.
The pessimist says that the end of the recession will bring inflation and higher interest rates, which will be amplified this time by the strength of the stimulus to the U.S. economy.
Heed the pessimist: Bloomberg reports today that bond traders are already counting on the Fed to raise interest rates in the fall:
Traders see a 51 percent chance the Fed will raise its target rate for overnight loans between banks at its November policy meeting. The bets increased from 25 percent a week ago, according to futures traded on the Chicago Board of Trade.
