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Unemployment Headline Is Negative, but Take a Look at Those Leading Indicators

The full-month employment report for June was not attractive - June produced a net loss of 467,000 jobs, much higher than in May, and well above even the pessimistic forecasts. The unemployment rate rose as well, to 9.5 percent from 9.4 percent in May. But these measures are all trailing indicators; the leading indicators within the employment report -- new unemployment claims -- look much better.

Today's report of a rise in unemployment clobbered the stock market, sending the S&P 500 down nearly three percent. But the details of the report show that such pessimism is unwarranted, according to Asha Bangalore, an economist at Northern Trust in Chicago:

The unemployment rate is a lagging indicator which is most likely to peak in 2010. ... The path of economic recovery is not a straight line; ups and downs in hiring are part and parcel of the expected trajectory of employment.
In the two prior recessions, she notes, employment did not start rising when the recessionary all-clear sounded: jobs did not pick up following the 1990-1991 slump until 1993, and after the unpleasantness of 2001, hiring was delayed until late 2003. (Please click on the graph below for a larger image.)

More deserving of our attention are the numbers of new unemployment claims, as well as continuing claims, both of which have turned down, according again to Ms. Bangalore:

The conclusion is that labor market conditions remain weak but the pace of job losses has slowed and initial jobless claims, a leading economic indicator, have peaked. This combination suggests that the labor market is improving in the desired direction.

But the big market selloff today, while perhaps not sensible, is understandable. The U.S. economy has gone from apocalyptic in autumn 2008, to free-fall in winter, to "less bad" in the first quarter 2009. But things aren't getting any better, and in order to carry on the "less bad" rally, the market needs more green shoots.

Maybe next week.

Update July 3
The Times' excellent economics writer Catherine Rampell reveals more of the details of recent employment reports -- sectors where jobs are growing, especially in the public sector.