In May, the economy lost significantly jobs than expected. The economy lost 345,000 compared to 520,000 that was expected. Now, I am big believer in watching this number along with GDP to predict where the economy is at.
This number has gotten progressively better since March. After the April numbers, I said that this number would be critical. I said that if we lost more than 500,000 jobs, that this would be a sign that the economy had a long way to go. I said that a better number, on the other hand, would be clear evidence that the economy is getting better. Obviously, the actual number was the latter.
So, now that we have clear evidence of an improving economy. Of course, we still have a long way to go. First, while the employment number were better than expected, the actual unemployment rate was worse than expected. The unemployment rate moved to 9.4% versus the consensus which expected 9.2%. The best explanation I've heard is that this reflects recent grads who aren't working. So, while the economy shaved less jobs, there was also more people looking for work.
Second, oil is now shooting up in anticipation of a recovery. We are currently at just under $70 a barrel and going up. We should see $3.00 a gallon gas prices by sometime this summer. Second, the jobs numbers have pushed Treasury rates to new recent highs. We are now at 3.8% on the 10 year U.S. Treasury and moving higher. We're likely headed to 4% on the 10 year at least. This will mean higher borrowing costs for all sorts of loans are going to go up. How will that affect the recovery?
Before we all pop the champagne, let's also remember that while the number was better than expected it's still bad. The key is that this trend continues. June numbers should reflect just how bad the bankruptcies of both Chrysler and GM will be. So, job losses could just as easily settle at 300,000 losses for a while. That would reflect the pressure from higher gas prices and higher interest rates. If next month's losses are less than this month's, that's even more signs that the economy is ready to recover.
What everyone needs to keep in mind is that the economy needs to gain 150,000-200,000 jobs monthly just to keep up with population gains. So, unemployment needs to keep its upward trend unti it reaches there. These numbers are excellent. Next month's are crucial. From there, we should be able to see a lot more just how close to a recovery we are at.
From there, we will have to see what kind of a shape we will have to the recovery. That will be the next test to the economy.
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