U.S. Payrolls Plunge

Daily Forex Fundamentals | Written by RBC Financial Group | Dec 05 08 14:19 GMT |

Today's labour force report was very weak, with payrolls dropping by a breathtaking 533,000 in November. Revisions to the data for October and September were also to the downside, with October's job losses revised up to 320,000 from 240,000 and September's decline revised to 403,000 from 284,000. The household survey indicated that the unemployment jumped 0.2% to 6.7% in November to stand at its highest level since October 1993. The weakness was broad-based; only government employment rose (by a paltry 7,000) of the major industry categories. Goods producers cut payrolls by 163,000, while service-providers trimmed a whopping 370,000 from their payrolls. Manufacturers cut another 85,000 positions, while the construction industry reduced employment by 82,000. Wholesalers (-23,000) and retailers (-91,000) also continued to pare back their workforce. Transportations companies lost 147,000 and financial firms trimmed 32,000 jobs. The average workweek slipped to 33.5 hours and hours worked in the manufacturing sector fell 40.3 hours, down from 41 as recently as July. Overtime hours continued to slide and came in at 3.3 hours. The index of aggregate weekly hours, which reflects the combined effect of hours and employment, fell 0.9% in November, building on October's 0.4% dip. In October/November, this index contracted at an annualized 5% compared to the third-quarter average. The monthly pace of wage gains, which slowed to a 0.2% rate in recent months, picked up to 0.4% in November and the year-over-year rate of the key wage measure in the report picked up to 3.7% from 3.6% in October. The U.S. economy has shed 1.9 million jobs so far in 2008, the fastest 11-month decline since the period ending January 2002, with the unemployment rate rising two percentage points in the past 12 months. With the number of unemployed growing rapidly, a financial market crisis that has yet to let up and a housing market still in recession, U.S. consumers are likely to continue to retrench and we expect another significant contraction in spending in the fourth quarter. Earlier reported data for November present an equally bleak picture and we forecast that the U.S. economy will contract at a 3.5% annualized pace in the quarter, which would mark the largest one-quarter slump since the early 1980s. This round of bleak economic news sets up for the Fed to lower the funds target again when they meet later this month and we anticipate a 50 basis-point rate cut to be announced. While there are some tentative signs that interbank funding rates and mortgage rates have eased up a bit in recent weeks, there's still a ways to go before credit market conditions will provide support to the economy, which means that the Fed will work to keep rates low and be vigilant in supporting areas of the market that come under duress. RBC Financial Group http://www.rbc.com The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.