Today’s Employment Situation Report showed continued weakness with the unemployment rate declining slightly to 9.7% while the Establishment survey showed a decline of 20,000 net non-farm jobs since December.It's important to recognize that with today's release the BLS revised the establishment non-farm payrolls series for the full year of 2009 (mostly as a result of the birth-death model) resulting in an additional 617,000 job decline for the year.
Although the severity of the jobs decline continues to abate, our current situation needs to be put in perspective before getting too optimistic about the strength of any ongoing recovery.
First, it’s important to recognize that at roughly 129.5 million non-farm jobs, we are currently at a literal level of employment first seen in September 1999 while as a ratio of the civilian population we are at 54.69%, the lowest level of participation seen since May 1985.
Further, 54 of the last 120 months showed declining jobs, easily the weakest decade long streaks in the post-war period with net monthly job losses occurring 45% of the time.
Finally, it’s important to recognize that today’s report brings the total private non-farm job losses to 8.5 million jobs or a 7.37% decline since the contraction began in December 2007.
The following chart combines both the “residential building” and “residential specialty trade contractors” into one payroll series and then plotting the data since 2002.Notice that, in aggregate, these payrolls, having peaked in February 2006 and declined 37.64% or 1,298,800 jobs since then, appear to be headed still lower.
Also note that independently, “residential building” has lost 42.35% of its payrolls or 433,700 jobs since it peaked during September 2006 and that “residential specialty trade contractors” have lost 35.85% of its payrolls or 872,500 jobs since it peaked during February 2006.
Next, let’s take a look a slightly broader set of industry sectors that have been directly impacted both by the housing boom and now the bust (click for larger chart).Note that I carefully selected sectors that showed either an obvious expansion-to-contraction trend OR a flattening-to-contraction trend and that ALL sectors have both a historical and logical relationship to residential housing as well as recent industry press releases disclosing declining profits as a result of the housing bust.
As you can see, sectors that are now being directly impacted by the current housing decline are numerous and cut across many levels of the job market from construction and materials to manufacturing and finally to retail.Combining these series into an aggregate of payrolls “directly impacted” by the housing boom and bust cycle and plotting it, along with the S&P/Case-Shiller Composite Home Price Index (click on chart below for larger version) since 1997 provides some pretty solid evidence that a relationship exists.
To expand the analysis a bit look at the following chart that shows percent change on year-over-year basis to BOTH the “directly impacted” payrolls sectors and ALL private non-farm payroll overlaid with the S&P/Case-Shiller Composite Home Price Index.
To get a sense of the relative intensity of the pullback to the “directly impacted” payrolls by plotting both the percentage of overall private non-farm payrolls that the “directly impacted” aggregate represents as well as the contributions it is making to the rate of change of the underlying total private non-farm payrolls.
Notice that at its peak the “directly impacted” payrolls represented over 6.67% (now 5.87%) of Total Private Non-Farm Payrolls and now contracted to a far more significant degree than that seen during the entire course of the 2001-2003 contraction.Plotting the ratio of overall and private non-farm payroll as well as the payroll of various business sectors to overall non-institutional population (above 16 years old and not in jail or “juvee”), the last eight years seem to pose more questions than answers.
The payroll-population ratio concept simply provides a mechanism for better isolating the changes to payroll rosters by calculating the percentage of population that is employed in a given sector at any given time.
In the following chart (click for larger version) you can see the ratio of overall non-farm payroll and private non-farm payroll to non-institutional population from 1948 overlaid with all U.S. recessions in that period.
As you can see, there is a fairly strong correlation to declining percent of population employed in non-farm and private non-farm endeavors and recession with particularly good peak-trough alignment for all recessions prior to 1990.During the 2001 recession (and to a far lesser extent in 1990), although there where large declines to the ratio during the official recession period, the economy seemed to be able resume growth while the ratio continued to slide or stayed well below the peak of the prior expansion.
This is an interesting situation in that, although increases in population have been steady and could have replenished the literal number of jobs lost during the downdraft of 2000-2003, the 2000s expansion of payrolls was not strong (jobless recovery).
The following chart (click for larger version), on the other hand, the payroll ratio related to construction has remained above even the peak set in the 90s expansion but has dropped significantly below trend.
