March Non-Farm Payrolls -80K: Labor Market Will Worsen

US corporations cut 80k jobs in March, marking the third consecutive month of job losses. The unemployment rate rose to 5.1 percent, the worse since September 2005. This drop was greater than the market expected, but will only be the beginning of even steeper losses. The March payrolls number does not include the latest jump in jobless claims, which have hit recessionary levels. With the US economy deteriorating, ATA airlines and Aloha airlines cutting another 4000 jobs (Dell also announced 8000 layoffs), the labor market will get worse. Therefore a 100k drop over the next few months is not only realistic but practically guaranteed.

Characteristic of the markets post non-farm payrolls, there has been alot of volatility in currencies. The US dollar first sold off, but then recovered back to pre NFP levels. Although the number may not be bad enough to force the Fed to cut by 50bp instead of 25bp at the end of this month, it will encourage them to take interest rates down to 1.50 percent.

As indicated by my non-farm payrolls preview:

Over the past 3 decades, the US economy has gone through 3 recessions. During these contractions, there were a string of job losses that lasted for a minimum of 10 months. We are already beginning to see this trend unfold. It will be months before we will see the economy start adding jobs once again. The largest single month job loss in each of the recessions was more than 300k. I wouldn’t be surprise to see the same degree of job losses in this business cycle.

Why should it be any different this time around?


For the first time in over 2 years, jobless claims have breached the 400k mark. If we exclude the 2 weeks after Hurricane Katrina, these are actually the worst levels since the last recession. Taking a look back at time when there was a string of consecutive job losses, on average jobless claims were well in excess of 400k. This confirms that April will be an even worse month for the labor market.


And even if you look at the Technical correlation between the employment component of ISM and Non-Farm Payrolls, it is clear that non-farm payrolls could fall by at least 200k.



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