Labor Day Blues

The release of the new unemployment data and labor market data was pretty much in keeping with expectations. MarketWatch reports that the unemployment rate is now at an 26 year high coming in at 9.7%. The drop in payroll numbers wasn’t as severe as it has been recently, but there are still troubling underlying factors.

Payrolls fell in most sectors of the economy except for health care. Total hours worked in the economy dropped by 0.3%, long-term unemployment worsened, and the number of people working just part time who wanted full-time work reached 9.1 million, up 278,000.

The number of people who’ve been out of work longer than six months nudged up to 5 million, representing about one-third of the unemployed.

An alternative measure of unemployment that includes discouraged workers and those forced to resort to part-time work rose to 16.8% from 16.3%, marking the highest on record dating back to 1995.

Average hourly earnings on the month rose 6 cents, or 0.3%, to $18.65 an hour. In the past year, average hourly earnings are up 2.6%.

Of the 271 industries as tracked by the Labor Department, 35% were adding workers in August, according to a survey of hundreds of thousands of business establishments.

Private-sector employment fell by 198,000 in August. Employment in the private-sector is now lower than it was 10 years ago

The duration of employment is some of the worst we’ve seen in a long time. That’s represented by the number of people that have been out of work longer than six months. Also, the level of discouraged workers and people involuntarily working part time is incredibly high. This is reflected in the last fact which shows that the economy has taken back all of the jobs created over the last 10 years and then some. There is simply no where to go.

One of the other interesting details in the numbers was the loss of government jobs by 18,000. Only food, beverage, and petroleum industries increased along with health care. The loss of government job is a reflection of the softening in state economies that will no longer be able to plug funding gaps with federal stimulus checks. Shortly, the slash of state budgets around the country will begin to drive the unemployment rate higher.

You can tell that it will be awhile before this all turns around because the average workweek was unchanged at 33.1 hours. If employers aren’t fully utilizing their current staff, they certainly aren’t going to hire any more.

The bad job market has undoubtedly led to this bit of news too. Loan losses at the Federal Housing Administration (FHA) are so bad that there’s question of solvency. The WSJ reports we may be in for yet another bailout. This creates a double whammy because the agency insures loans for buyers with small downpayments and has be instrumental in a lot of the first time buy loans coming out of the stimulus plan.

In the past two years, the number of loans insured by the FHA has soared and its market share reached 23% in the second quarter, up from 2.7% in 2006, according to Inside Mortgage Finance. FHA-backed loans outstanding totaled $429 billion in fiscal 2008, a number projected to hit $627 billion this year.

Rising defaults have eaten through the FHA’s cushion. Some 7.8% of FHA loans at the end of the second quarter were 90 days late or more, or in foreclosure, according to the Mortgage Bankers Association, a figure roughly equal to the national average for all loans. That is up from 5.4% a year ago.

Resulting FHA losses are offset by premiums paid by borrowers. Federal law says the FHA must maintain, after expected losses, reserves equal to at least 2% of the loans insured by the agency. The ratio last year was around 3%, down from 6.4% in 2007.

If its reserves fall short, the agency is obliged to notify Congress, which could spark a commotion over the extent to which the government is funding losses in the housing market. Some housing analysts have said losses might lead the FHA to pull back lending, which has helped boost flagging housing demand.

It appears that more and more federal programs geared to help ordinary Americans are on the ropes. This is especially tough since so many folks have lost their jobs, the number of hours they work, or are experiencing cuts in benefits and salary. There’s still a long way to go before this recession is over and we show any signs of a real recovery. Consider that we’ve lost all gains on assets and now all jobs created in the last 10 years. We’ve already got one lost decade under our belt. What’s in store to stop the next one?

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