In anticipation of Friday’s release of the latest read on the employment situation, this post, along with the next several daily posts, will attempt to present a progression of analysis seeking to shed more light on issues surrounding the present state and future prospects of the job market.
First, to get a sense of what’s at stake here, envision some of the key problematic elements that we know to exist in our economy today, namely nationally declining property values, upwardly resetting mortgage interest rates and a nearly complete absence of commercial lending all working together to trap a large cohort of homeowners, especially from 2000-2006 vintages, in an unprecedented state of financial stress resulting in a significant loss in confidence, a material pullback in consumption, and soaring rates of foreclosure activity.
If there was ever a time when a down-shift in employment could spontaneously spark the self-reinforcing tinder of a widespread recessionary conflagration, this must be it.
But as we all must doubtlessly “know” or, at least, have been made repeatedly aware by the traditional media, all this current turmoil had, until now, come amidst the “backdrop” of a strong labor market.
Yet, considering the less-than-fundamental circumstances that drove the expansion of the housing boom, the labor market weakening as a result of the housing bust and not the other way round should come as no surprise.
The financial engineering that brought forth a bounty of no-money-down, no-doc, low-doc, neg-am, sub-prime toxic ARM, HELOC, teaser rate and cheap jumbo loans was a nationwide phenomenon and as such, infected all property markets with equal inflationary ferocity.
Now, post-collapse, these very same markets and, more importantly, their participants, are left to navigate their way through the aftermath resulting in, in all likelihood, a continued shortfall in demand for luxury, discretionary and even non-discretionary comforts as the remaining borrowers that are prepared to service their debt obligations hunker down.
This hunkering down, be it forced or of one’s own volition, is the essential element driving an unwinding of the consumption machine that, when taken full course, will likely dictate a significant restructuring of the business of both producers and service providers.
So, three interesting aspects of our labor market that warrant some investigation in order to better understand current and future outlook are as follows:
1.) What, to date, has been the direct impact of the housing decline on the labor market including fallout from construction, real estate services, building materials, home furnishings, home services and retail?
2.) What might be the extent of job losses related to corporate restructuring in preparation for and as a result of a prolonged recession?
3.) Can the recent expansion of net exports serve to buoy the economy, drive job creation and offset the effects of a protracted domestic slowdown?
In upcoming posts, Ill attempt to provide some data that may help to provide a basis for drawing some conclusions for these basic questions but for now, let’s look at the current breakdown (click for larger charts) of both the total labor force given by the BLS household survey data and non-farm payrolls given by the BLS establishment data.
As you can see, the US is truly a service economy and that fact will likely play an important role in any forthcoming restructuring.
