Jobs Plunge ... No Kidding

Employment conditions continued to deteriorate in September, with payrolls contracting by 159k, above the consensus forecast for a decrease of 105k and the most since March 2003. The increase is double the average decline posted in the first eight months of the year.

The deterioration is hardly a surprise; economic data, and data on jobless claims in particular, have forewarned the deterioration. Who, for example, after seeing jobless claims soar from about to almost 500k per week over the past two weeks from 370k not long ago could possibly be surprised by today's jobs report?

I have said since August that the spike in jobless claims hint at a dark period characterized by deepening job losses, adding that it would take one to three months of such losses before investors became numb to the data and begin to ignore the data and look ahead to better times, as has occurred in previous recessions.

Today's report was for the pay period ended Sept. 13, which means that it could not have captured recent events, which have obviously been seismic. The recent jobless claims statistics, for example, which saw jobless claims hovering at about 500k (partly because of hurricane-related effects) over the past two weeks, were for weeks that followed the survey period.

Moreover and more importantly, the frozen state of the credit markets could have prompted businesses to behave with extra caution, worsening the job situation.

Today's data strengthen the case for further interest-rate cuts, chiefly because the data portend deeper economic weakness than the Federal Reserve is forecasting. An inter-meeting cut is possible, given that the date of the next Fed meeting - Oct. 29 -- seems a long time to wait in the current environment.

The market is priced for 100% odds of a 50-basis-point cut occurring by the Oct. 29 meeting. A cut on payroll Friday is something that occurred many times in the early 1990s, but the Fed might want to wait for Congress to vote on the financial stabilization bill (to keep the pressure on), or, if the hawks are having their say, until the meeting itself.

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Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of the revised investment classic, The Money Market, first published in 1978 by Marcia Stigum, and The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback; click here to send him an email.

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