Friday’s grueling employment report from the Bureau of Labor Statistics set the stage for a well-earned light data week, shortened somewhat by a market holiday in observance of Good Friday.

The employment report was just a little worse than expected with data showing a loss of 663,000 payroll jobs in March -- the 15th consecutive month-to-month decline in payroll jobs, the fifth straight month in which payrolls have dropped by 600,000-plus jobs. The unemployment rate increased to 8.5% and both inspired the expected round of superlatives and comparatives. Commentators stressed the labor market is a “lagging indicator” and didn’t necessarily tell us about the future.

In that sense, all economic reports are lagging, but buried within the BLS report were some forward-looking tidbits which suggest further pain to come:

• Weekly hours, a drop in which is generally a precursor of job cuts, declined to a record low.
• Average weekly earnings, a driver of retail activity, fell as hours worked declined.
• The increase in the number of people unemployed means further drains on state unemployment insurance funds.
• The rise in the unemployment rate for college graduates -- who are more likely to be homeowners -- jumped again, pointing to a further increase in foreclosures.

Hours are generally cut as employers try to simultaneously save money and maintain staffing in anticipation of an uptick. Think of it this way: when you first turn on the hot water in the morning it takes a few minutes for it to warm; if you had let the water run slowly overnight, you would have hot water immediately. That’s how employers operate -- until the cost of the water becomes too high (not to mention the environmental impact, or, to continue the questionable metaphor, the associated benefit costs).

Average hourly earnings continued a slow steady upward trend, increasing three cents, or 0.2%, from February, a little less than five-cent monthly increase in the last 12 months. But, with the cut in hours, average weekly earnings fell from February and are up just 1.5% from March 2009, the weakest year-over-year increase since March 2004. 

Since consumption is about 70% of the economy, the weak growth in earnings threatens any increase in consumer spending. (What may boost spending is the $8 a week increase in take-home pay that began Wednesday -- no April Fool’s joke -- from the tax relief in the stimulus plan, more than the drop in earnings.)

In the aggregate, though, income is down because, according to the employment report, 861,000 fewer people were employed in March than in February -- 861,000 who will not earn even the reduced weekly earnings and not benefit from the higher take-home pay.

The data will only exacerbate bank problems which, on paper at least, were eased with accounting changes enacted by the Financial Accounting Standards Board. Under the new rules, banks won’t have to write down declining assets in their portfolios and take losses which threaten their capital and solvency. That’s not to say the losses aren’t there, but now the banks are allowed to ignore them. It may be provide a short term profit boost, but could imperil financial companies in the future.

The new bank problems were described in a report from the American Bankers Association which said consumer loan delinquencies in the fourth quarter rose to a record 3.22% (by number of accounts) from 2.90% in the third quarter. All individual categories of consumer delinquencies -- credit cards, home equity loans and auto loans -- increased with home equity delinquencies topping 3.0% for the first time since the survey began in the 1970s. According to James Chessen, the ABA’s chief economist, “the wheels just fell off the economy in the fourth quarter.” Job losses, he said, “deal the economy a severe shock and that continues to be the biggest driver for delinquencies.”

Chessen added: “as the economy continues to shed jobs, it is unlikely that delinquencies will see any improvements this year.”

The home equity delinquencies could be particularly troublesome since banks generally keep such loans on their balance sheets.

But not all the economic news was bad last week as the Spectrem Group, a Chicago-based consulting group reported its Millionaire Investor Index and the companion Affluent Investor Index (measuring the investment outlook of households with $500,000 or more in investable assets) each rose eight points.

Interestingly both reports -- from Spectrem and the ABA -- followed the latest report on home values from Case-Shiller which showed yet another sharp decline in home prices, generally the largest single household assets.
There will be no parallel reports in the upcoming week, with data instead reflecting broader measures including the balance of trade deficit and the federal budget deficit. The closest we will get to telling us about how the economy is affecting individuals and households will be Wednesday’s weekly report on mortgage applications and Thursday’s weekly data on unemployment insurance claims.

Mortgage applications -- demand -- may continue to increase as homeowners try to take advantage of falling interest rates, but the struggling labor market will keep approval rates low, limiting the overall impact on the economy. Lenders remain reluctant to lend as underscored by the employment report which showed a continued decline in financial sector employment including a drop in loan underwriters.

One interesting non-data report in the upcoming week will be Tuesday’s release of the minutes of the Federal Open Market Committee’s March 17-18 meeting. The minutes will include updated economic forecasts. Friday’s employment report suggested the “central tendency” forecast by the Federal Reserve of an unemployment rate topping out between 8.4% and 8.7% this year may have been understated.

Mark Lieberman is the senior economist for the Fox Business Network. Prior to joining FOX, he served as first vice president and manager of economic analysis and research at Washington Mutual in New York. Before that, he served as senior vice president at Dime Savings Bank of New York (which was later acquired by Washington Mutual), where he specialized in credit and risk management. He is a member of the Executive Committee of the New York Association for Business Economics. He has a degree in Economics from the Wharton School of the University of Pennsylvania.