7% Unemployment Expected Friday... 8.5% By June?

This week will reveal the economy’s tolerance for pain.

Investors will find out the official unemployment rate finished for 2008.  The consensus estimates from both Dow Jones and Bloomberg show a 7.0% unemployment rate and a loss of roughly 500,000 jobs.  Unfortunately, this may just be a speed-bump on the way to 8.5%.

Last month’s reports showed aloss of 533,000 in non-farm payrolls in November with an unemployment rate of6.7%.  Before you get too excited that the 500,000 expected for thismonth would be a slower loss, keep in mind that most companiesthat were firing or laying off workers did their cuts before December.That means that the real drop will come next month after the retail andtemporary year-end workers are sent packing.  Maybe that will markthe end or maybe not.  We have to get through one more round of monthlydata before assigning any more guesses for a month out, and we’ll alsostart to get all of the post-earnings announcements during the next twoto three weeks.

So our guess is that you will see an increase in the jobs losses.  If we see toomany more months of 500,000 jobs destroyed then it is not going to taketoo long to reach 8.5% unemployment. 

Our hope for this to not occur would be that corporations begin to slowdown on their layoffs with at least a wait-and-see attitude.The Obama administration is not yet in office and no stimulus packageshave been enacted besides the financial bailouts.  Butif you read the corporate outlook reports, it might be a blessing if weonly see 8%. 

Much of this data is also going to be dependent upon Thursday’s weeklyjobless claims.  That number is expected to come in at roughly 540,000for the month.  It will also start to give an indication for thecoming January data more than Friday’s data for December.  Regardlessof what the data reads, get ready for more media headlines callingmulti-year highs in unemployment.   

Jon C. Ogg
January 6, 2008