The U.S. Economy has lost the most payroll employment jobs over the three-month period ending in November since mid-1975 in the stagflation years following the Arab Oil Embargo. Friday's number came in with a loss of 533,000 jobs for November, and over the three month period, with revisions added in September, we've seen a three-month drop of 1,256,000 jobs, or a 0.9% drop in total payroll employment. The last time we saw a drop even approaching that magnitude in numbers of jobs was in December 1974, when the market saw a drop of 957,000 jobs, which at the time represented s 1.2% drop in payroll employment. The worst drop, both in numbers and in percentage terms occurred in March, 1958 when the economy lost 1,085,000 representing a 2.1% drop in employment over a three-month period.
Here's a table showing all the previous times the economy has shed 0.9% of its payroll jobs in a rolling three-month period:
(Date) (PAYEMS) (PAYEMS-prev) (Net)(Net%) (t+100)
04/07/1944 42291.042747.0 -456.0-1.1 6.6
05/04/1945 41443.041903.0 -460.0-1.1 8.9
09/07/1945 40466.041304.0 -838.0-2.0 18.7
02/04/1949 44675.045250.0 -575.0-1.3 -6.6
06/03/1949 43982.044500.0 -518.0-1.2 14.3
11/04/1949 42950.043530.0 -580.0-1.3 8.3
08/01/1952 48144.048616.0 -472.0-1.0 3.7
12/04/1953 49906.050487.0 -581.0-1.2 12.8
04/02/1954 49158.049702.0 -544.0-1.1 12.6
12/06/1957 52557.053128.0 -571.0-1.1 5.2
04/04/1958 51300.052385.0 -1085.0-2.1 15.5
08/05/1960 54303.054812.0 -509.0-0.9 4.7
01/03/1975 77657.078614.0 -957.0-1.2 26.9
05/02/1975 76463.077297.0 -834.0-1.1 -3.9
07/04/1980 90095.090991.0 -896.0 -1.0 18.6
12/05/2008 136167.0137423.0 -1256.0 -0.9 NaN
Legend:
Date/Day: the first Friday in the month following the payroll report, corresponding to the release date.
PAYEMS: U.S. payroll employment in thousands (Source: BLS/Federal Reserve of St. Louis)
PAYEMS-prev: U.S. payroll employment three months prior, in thousands
Net: the difference between PAYEMS and PAYEMS-prev (in thousands).
Net%: the percentage change between PAYEMS and PAYEMS-prev
t+100: the percentage move from the close of the SPX on the event date and the close 100 trading days later (see table below for more)
So as a measure of the sentiment of the economy, this is a great indicator showing how the engine of the economy, the captains of business, are feeling about the future. When they start cutting workers at this rate, it is because they're worried about meeting payroll. You can see this on the second chart below, which shows in red the three month change in payroll employment, with previous recessions indicated in gray.
We have been tracking this indicator for a long time as our REWIND (Recession Early Warning Indicator) and we have found that when the three month Net change of the PAYEMS number crosses into negative territory, that the economy is already in what will be later termed a recession. This allowed us to make a call in March of this year which suggested we were already in a recession. In a related news item, the NBER just last week caught up to the fact and officially announced that the U.S. economy has been in a contraction since January, 2008.
Q: How has the stock market reacted in the past following a three-month drop in the payroll employment number in excess of 0.9%?
A: According to the 15 previous occurrences of this event, EventEdge indicates that SPX has shown a strong bullish edge that peaks 101 trading days after the event. Thus, the projected date for the peak of the bullish edge relative to the current event date (Friday, Dec. 5, 2008) is Monday, May 4, 2009. SPX rallies in 87% of the cases (13 of 15) by an average of 12.4% relative to the close on the event date. The average of the two declines is 5.1%. The overall return of the 15 cases is 10.0%, which, based on the close of SPX on the event date (876.07), provides a target price of 963.68.
For more Market History go to www.markethistory.com
Gibbons Burke is editor of MarketHistory.com.
Related Ideas:
U.S. Economy - Recession - March 14, 2008