US Employment Hemorrhaging Worsens

February 6, 2009

As the world awaits the likely passage of the United States stimulus bill, the US economy sinks deeper into the recession abyss.  The Department of Labor reported today that nonfarm payroll employment fell 598,000 in January, bringing the total unemployed to over 11 million! The unemployment rate jumped from 7.2% in December to 7.6% in January, a 0.4% increase in one month. 

Since December 2007, the economy has lost 3.6 million jobs.  If you take the average weekly earnings of $614.72 (as provided by the Department of Labor), annualize it, and multiply it by the number of people who have lost their jobs, you will see that annualized incomes have fallen by over $115 billion.  Each month that the economy loses 600K jobs, annualized incomes will be hit by an additional estimated $20 billion.

Now, let’s assume that the stimulus bill miraculously ends up getting signed by President Obama by the end of next week.  If that happens, one could reasonably assume that the first stimulus dollars start to hit about one month after.   Between now and then, another $30 billion - $50 billion of personal incomes will potentially have disappeared.  This, of course, assumes that the situation does not deteriorate further.

The longer the economy goes without significant, sustained stimulus, the larger the stimulus package will need to be.  If you read my article yesterday, I made an assumption that about $300 billion of the proposed stimulus bill would be applied to 2009.  Assuming this bill passes and goes into effect by mid-February, the impact of the legislation will not begin to be felt until late spring.  The real question will be, "Will it be enough to turn around the economy?”

Growing choruses of “expert” TV commentators is voicing increasing pessimism the stimulus will be sufficient or quick enough to reverse the deterioration.  Despite this, the US equity markets have clearly pinned hopes of an economic recovery on likely passage of the stimulus bill and are bidding up prices.  As of 12 PM EST, the SP500 is up about 2%.  It will be interesting to see if the market can sustain itself in the days and weeks after the probable legislation passage.  Or, will it swoon to new lows, as it did after the passage of the TARP?