Unemployment Rises, Payroll Losses Far Exceed Analysts' Estimates

By Bob Blandeburgo
Associate Editor
Money Morning

June's unemployment rate increase was less than economists were anticipating, but the overall number of jobs lost was substantially higher than expected.

The unemployment rate crept up to 9.5% last month – its highest level since 1983, according to the latest report from the U.S. Department of Labor. That's up from May's 9.4% rate. Total job losses for the month were 467,000, far below the 365,000 economists at Briefing.com expected, which were also slightly off on their estimate of a 9.6% unemployment rate.

Of the sectors hurt most by payroll losses, none was worse than the service-providing industry, which saw a loss of 244,000 jobs. That was followed by the goods-producing industry, which shed 223,000 jobs.

"The stimulus has probably stabilized income, but it has not moved the economy forward," Wachovia Corp. chief economist John E. Silvia said in an interview with The New York Times. "It's a finger in the dike. But in terms of getting the economy going, there's no evidence of that yet."

Underemployment, where desperate workers take jobs that are not meeting their desired compensation, hours or level of skill and experience, increased to 16.5% in June from 16.4% in May. The underemployment rate last month was the highest since the Labor Department started tracking it in 1994.

Some analysts, such as Themis Trading's Co-Manager of Trading Joe Saluzzi, believe underemployment is the "real" amount of unemployed people in the market.

"[16.5% is] the real amount if unemployed people out there. If anything you see wage growth is not there, hourly earnings and the workweek is lower. Now you have a recipe that is a mess here, because nothing is improving. People still want to say that unemployment is a lagging indicator, I don't get that," Saluzzi told Reuters."The only thing we've got going is stimulus, which is government, Fed type stuff. There's a lot of problems still. So people have to come back down to earth and realize where we are. This should not have been a surprise to anyone."

Indeed, the increasing unemployment is not a surprise considering analysts expect the unemployment rate to reach 10% or higher.
But with so many missed estimates, is it better to not predict these numbers at all?

According to Money Morning Investment Director Keith Fitz-Gerald, the answer is yes.

"Predicting unemployment numbers is really a moot point," Fitz-Gerald said. "[The unemployment rate] is posted after the fact and are designed to produce wishful thinking. The reality is we have no idea what these numbers will look like six months from now."

According to Fitz-Gerald, the unemployment rate actually spurs innovation in business.

"If there is a good sign in all of this, it's that periods of economic strife tend to promote unprecedented entrepreneurship levels," he said.

When the recovery does happen, it is likely new jobs will be hard to come by as employers try to make up for lost profits by keeping payrolls leaner and expect existing workers to be more efficient.

News and Related Story Links:

• Bureau of Labor Statistics:
  Employment Situation Summary
• The New York Times:
  U.S. Job Losses Rise in June as Unemployment Reaches 9.5%
• Reuters:
  U.S. Payrolls Fall More Than Expected in June
• Money Morning:
  Is the U.S. Economy Headed for a "Jobless Recovery?"
• Money Morning:
  The Four Secrets to Career Success in a Jobless Recovery
• Money Morning:
  Where to Find Jobs in a Jobless Recovery
• Money Morning:
  After the Layoff: Seven Ways to Ensure Your Success
• Money Morning:
  Management Strategies For a Jobless Recovery