I really was starting to feel good about the economy until I saw the NFP job losses today. I actually believed the ADP numbers posted yesterday of 451K was a sign that unemployment was going to settle down faster than I thought. Instead, today the number of non-farm payroll filed unemployment insurance claims remains over 600K for the month. Yes it is dropping, but at such a a slow pace that it is insignificant.
At the pace we are on, if the NFP number drops, lets say, 10K each week for the next year, we will have unemployment at or near 12%. 12%!!!! Stick that into your stress test numbers and smoke it. What happens to our financials, to our retail, to house pricing if unemployment hits 12%?
Look at the chart below. There is no give in the unemployment numbers. This chart alone should have you scared to death.
OK, if that doesn't have you scared to death. How about the following chart which takes the current data and extrapolates out with new NFP numbers dropping by 40K per month for the next 12 months. And that is conservative. Economists say starting this month, the number needs to go down 30K per month.
What this shows is that by September of 2009, we will hit the 10.5% unemployment number economists are predicting to be the peak. And this is the number the gov't used for stress tests on banks.
What happens when, if we go to 11.8%? What does that do to the banks? Do they need more capital? If so, where does that come from?
I don't have answers to these questions but I find these charts interesting and even more interesting how the media portrays the jobs number as positive.