October Job Losses and Interest Rates

The U.S. Department of Labor through the Bureau of labor Statistics announced this morning that nonfarm payroll employment fell by 240,000 in October, and the unemployment rate rose from 6.1 to 6.5 percent.  October’s drop followed revised payroll employment declines of 127,000 in August and 284,000 in September.  Total employment has fallen by 1.2 million in the first 10 months of 2008.  More than half of the decrease has occurred in the past 3 months.  In October, the job losses sustained in manufacturing, construction, and several service-providing industries.  Health care and mining added jobs.

The unemployment rate rose by 0.4 percentage point to 6.5 percent in October, and the number of unemployed persons increased by 603,000 to 10.1 million.  Over the past 12 months, the number of unemployed persons has increased by 2.8 million, and the unemployment rate has risen by 1.7 percentage points.

Highlights in sectors of job growth and job loss included the following.  Manufacturing employment declined by 90,000 over the month.  Construction employment fell by 49,000 in October.  Within professional and business services, the employment services industry shed 51,000 jobs in October.  Retail trade employment fell by 38,000 in October, with the largest losses occurring among automobile dealers, down 20,000 and department stores, down 18,000.  Employment in financial activities declined by 24,000 in October.  Health care employment continued to expand in October, with an increase of

26,000.

On Thursday Nov. 7, 2008 the Department of Labor had also released the weekly unemployment claims.  In the week ending Nov. 1, the advance figure for seasonally adjusted initial claims was 481,000, a decrease of 4,000 from the previous week’s revised figure of 485,000. The 4-week moving average was 477,000, unchanged from the previous week’s revised average of 477,000.  With continually high unemployment claims, numbers for employment going forward does not look good.

The impact for interest rates will be for continued downward pressure.  This morning the 10 year Treasury bond is already showing strength in price and a reduction in yield.  The 10 year Treasury has dropped by 21 basis points this week already, from 3.96% to 3.75%.  The one year Treasury has had a similar move as its rate has go down from 1.31% to 1.17%.  With the economy most certainly firmly in a recession, interest rates will most likely stay low for the near future.  The flight to quality normally found during economic stress will be exacerbated by the credit crisis.  This should bring down the interest rates on Treasury securities in a disproportionate position to other interest bearing financial products.  Since bank CD share a similar quality to Treasury securities with principal security, safety and at least moderate liquidity, depending on the term of the CD investment, expect the interest rates on CDs to be pushed lower in the coming months.  Competition in the bank industry will still show some banks moving out of step and promoting rates on CDs that are above the norm.  With the continued pressure on lower rates even the outlier banks with significantly higher CD rates should be contained somewhat and their rates will be lower as well.  Check national CD rates and state CD rates to see where the continued opportunities in CD investments may be positioned.

This entry was posted on Friday, November 7th, 2008 at 10:21 am and is filed under Money Rates. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.