Unemployment Rises to 5-Year High, Near Peak of Last Recession

The unemployment rate unexpectedly surged to a new 5-year high of 6.1% in August from 5.7% July, 5.5% in June, and 5% in May. This type of rapid rise in the unemployment rate is normally associated with a recession, and is now only slightly below the 6.3% peak of the last recession. The economy actually shed 84 thousand jobs in August(consensus -75k, prior revised to -60k from -51k originally reported) according to the payroll report, right in line with the three month average monthly loss of -81k. Revisions to prior months added another 58k jobs lost, Year-to-date, the economy has lost over 600 thousand jobs. In addition, the aggregate hours index, which takes into account jobs lost and hours worked, etc, fell again in August by -0.1%, and is down -1.8% annualized over the past three months. The pace of decline in aggregate hours has accelerated from -0.4% quarterly annualized back in May. Surprisingly, average annual hourly and weekly earnings picked up in the face of the slowing labor market. Both grew +0.4% MoM, with hourly earnings rising to +3.6% YoY from +3.4% the prior month, and weekly average earnings rising +3.3% from +3.1%. Even with the improvement though, wages are not keeping up with inflation. Hours worked held steady at 33.7, but manufacturing hours worked did fall by a tenth to 40.9, the lowest in over six months. Breaking down the 84 thousand jobs lost in August, the private sector actually eliminated 101k, but the government sector grew by +17k. All major categories lost jobs except for education and health, which grew by 53k due to the start of the new school year. The largest loser was manufacturing, which declined by -61K (consensus -35k), the largest loss in at least six months. Auto production jobs fell by -39k, as auto sales remain mired at decade plus lows. Other categories which declined significantly include goods-producing at -57k, business services at -53k, temporary help (an important leading indicator fell to -37k vs -24k in July), and trade and transport fell -35k. All of these suggest that foreign demand for US goods may be slipping as the dollar bounced in August. Retail continues to shed jobs, losing -20k in August, as consumers retrench on unnecessary spending. The housing crisis continues to show in an additional 8k building jobs lost and 3k financial positions eliminated. Total service industry jobs fell by a combined -27k in August. The rise in the unemployment rate was due to 250k increase in the labor force, and a 342k drop in household employment. The household survey used for the unemployment rate calls a sample of citizens at home to get their employment data. The job loss report surveys employers, and makes assumptions about new business growth. This month the rise in unemployment is not being blamed on teens. Their unemployment rate fell -1.4% MoM. Net, this was a weak report for the US economy as jobs unemployment rises, raising the likelihood of weak GDP growth in the 3rd quarter, and increasing the likelihood that the US is in recession.