I agree that jobs – or the lack of – are going to be problem for many months. In fact, with the shift in the mix of jobs (service jobs account for 85% of private sector jobs up form 60% in the 1960s) the pace of job loss is much worse than the headline numbers make them appear. Nonfarm payrolls are off about -4% y/y similar to the early 1980s and the V-shaped recessions of the 1950s. However, when one looks at the manufacturing and services separately, the picture is grim. We have lost manufacturing jobs at a “normal” -10% as seen in the 1950s, 70s, and 80s, but service jobs, which rarely turn significantly negative are shrinking by a record -2.2% versus the 1949 record of -1.4%. Correct me if I am wrong, but lost service jobs are difficult to replace because much of the knowledge walks out the door when the employee leaves. It would seem like potential GDP is ratcheting down and that there may not be as much “spare” capacity as the statistics indicate.

Also, it seems that real wages and benefits are probably weaker and more broadly weaker than the numbers indicate – at least anecdotally it seems like employees are feeling pinched by company-wide salary cuts and benefit cuts (lower 401k matching, high medical insurance costs, reduced wages and/or work hours). Intuitively isn’t it worse (for the economy) to cut everyone’s salary by 10% rather than just cut the lowest 10% of performers? Or perhaps companies want to do that but they can only lay-off people so fast and are being forced to retain workers at lower wages/benefits until they “can” fire them later.

Finally, 1Q Consumption seems a bit odd – about a quarter of the 2.2% bounce came from durable goods purchases, but the auto manufactures reported that unit sales of vehicles contracted by 8% in 1Q? Also another quarter of the bounce in consumption came from a rise in electricity and medical care consumption – probably signs of people staying at home and running to the doctor before they lose their medical benefits (or the costs go up). Those do not seem like signs of strength.

Anyhow, those are my rays of sunshine.

Thanks,
David Gagnon