by Calculated Risk on 10/02/2009 09:30:00 AM

Note: earlier Employment post: Employment Report: 263K Jobs Lost, 9.8% Unemployment Rate. The earlier post includes a graph of percent job losses in a recession - the current recession is the worst post-WWII.

Stress Test Scenarios

The economy is performing better that the stress test baseline scenario for GDP and house prices, but worse than the "more adverse" stress test scenario for unemployment.

Click on graph for larger image in new window.

This graph shows the unemployment rate compared to the stress test economic scenarios on a quarterly basis as provided by the regulators to the banks (no link).

This is a quarterly forecast: the Unemployment Rate for Q3 is 9.63% (rounded to 9.6%), and will move higher in Q4. Once again, the unemployment rate is already higher than the "more adverse" scenario.

Note also that the unemployment rate has already exceeded the peak of the "baseline scenario".

Unemployed over 26 Weeks

The DOL report yesterday showed seasonally adjusted insured unemployment at 6.1 million, down from a peak of about 6.9 million. This raises the question of how many unemployed workers have exhausted their regular unemployment benefits (Note: most are still receiving extended benefits, although many workers are starting to exhaust their extended benefits too).

The monthly BLS report provides data on workers unemployed for 27 or more weeks, and here is a graph ...

The blue line is the number of workers unemployed for 27 weeks or more. The red line is the same data as a percent of the civilian workforce.

According to the BLS, there are a record 5.4 million workers who have been unemployed for more than 26 weeks (and still want a job). This is a record 3.5% of the civilian workforce. (note: records started in 1948)

Diffusion Index

The BLS diffusion index is a measure of how widespread changes in employment are. Some people think it measures the percent of industries increasing employment, but that isn't quite correct.

From the BLS handbook:

The diffusion indexes for private nonfarm payroll employment are based on estimates for 278 industries, while the manufacturing indexes are based on estimates for 84 industries. Each component series is assigned a value of 0, 50, or 100 percent, depending on whether its employment showed a decrease, no change, or an increase over a given period. The average (mean) value is then calculated, and this percent is the diffusion index number.

Think of this as a measure of how widespread the job losses are across industries. The further from 50 (above or below), the more widespread the job losses or gains reported by the BLS.

Both the "all industries" and "manufacturing" employment diffusion indices had been trending up - meaning job losses were becoming less widespread. However both turned down in September. This series is noisy month-to-month, but it still appears job losses are widespread across industries.

Ugly. Ugly. Ugly.