FRIDAY NOVEMBER 6, 2009

10.2%!

10.2%!  That will be the leading headline this week.  This morning, the Department of Labor announced that the unemployment rate jumped to 10.2%, the highest since 1983.  The media will be apoplectic, calling for all sorts of counter-productive remedies like more stimulus spending.  Certainly, the unemployment rate is an important psychological number for consumers.  However, the headline number is less meaningful than the underlying trend, and the underlying trend continues to be encouraging.  Receiving far less attention, is yesterday's increase in productivity.  Productivity increased a record 9.5%!  The combination of these numbers suggest that employment gains will occur in the near future.

Despite the dramatic headline number, the trend in job losses continue to improve. The October loss of 190,000 jobs is substantially better than 600,000+ jobs per month the economy was shedding earlier this year.  The trend line suggests job creation should start to occur in the first quarter. 

The strong productivity numbers also suggest that employment gains are on the way.  When the economy is tough and uncertain, employers resist hiring new employees (and the wages and benefits that come with them) and attempt to make do with fewer people by increasing productivity.  With productivity up a whooping 9.5%, that is clearly occurring.  However, there is only so much blood to squeeze from the productivity rock.  If the economy continues to improve, at some point, employers will need to start hiring.  Both the productivity and underlying unemployment numbers indicate that employment gains should occur in the near future.

The headline unemployment rate is likely to increase further in the near future.  But the underlying trend is encouraging.  The productivity increase should help corporate profits which in turn will help employment.

POSTED AT 1899-12-30 13:17:00.0

KEN ENTENMANN, CFA
SENIOR VICE PRESIDENT AND
THE DIRECTOR OF INVESTMENT MANAGEMENT SERVICES

Ken is a Senior Vice President and the Director of the Trust and Investment Services at Alliance Bank, N.A. He has 23 years of investment experience and oversees the management of assets totaling $1 billion. He holds a B.S. in Applied Economics and Business Management from Cornell University and an M.B.A. from the William E. Simon Graduate School of Business Administration at the University of Rochester. He has also earned his Chartered Financial Analyst designation. He is a member of the Executive Committee of the Trust Division of the New York Banker's Association. He is also a director of the Central New York Community Foundation.

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