Envisioning Employment: Employment Situation March 2009

Today’s Employment Situation Report showed continued unequivocal and truly dramatic signs of a severely contracting recessionary economy with the unemployment rate jumping to 8.5% while the Establishment survey showed a massive decline of 663,000 non-farm jobs over the same period.

Further, there were considerable revisions to past months resulting in a stunning 4,209,000 non-farm jobs lost since just last August and 5,133,000 private non-farm jobs shed so since the peak in December 2007.

With the latest news just littered with poor earnings reports and announcements of job cuts and layoffs cutting across all regions and most industries, the recessionary job loss trend now appears to be following a far more severe trend than seen during our prior two recessions.

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 28.17% or 973,300 jobs since then, appear to be headed lower.

Also note that independently, “residential building” has lost 29.33% of its payrolls or 299,900 jobs since it peaked during September 2006 and that “residential specialty trade contractors” have lost 27.88% of its payrolls or 680,200 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 6.7% (now 6.15%) 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.

Mid-Cycle Meltdown?: Jobless Claims February 12 2009

Today, the Department of Labor released their latest read of Joblessness showing seasonally adjusted “initial” unemployment claims declined 8,000 to 623,000 from last week’s revised 631,000 claims while “continued” claims increased 11,000 resulting in an “insured” unemployment rate of 3.6%.

It’s important to note that although the last several reports have indicated a slight decrease in the seasonally adjusted initial jobless claims, the non-seasonally adjusted numbers are showing very large increases.

The following chart shows the recent trend in initial non-seasonally adjusted initial jobless claims with the year-over-year percent change acting as a rough equivalent of a seasonally adjustment.

Historically, unemployment claims both “initial” and “continued” (ongoing claims) are a good leading indicator of the unemployment rate and inevitably the overall state of the economy.

I have added a chart to the lineup which shows “population adjusted” continued claims (ratio of unemployment claims to the non-institutional population) and the unemployment rate since 1967.

Adjusting for the general increase in population tames the continued claims spike down a bit but as you can see, the pattern is still indicating that recession has arrived.

The following chart (click for larger version) shows “initial” and “continued” claims, averaged monthly, overlaid with U.S. recessions since 1967 and from 2000.

NOTE: The charts below plot a “monthly” average NOT a 4 week moving average so the latest monthly results should be considered preliminary until the complete monthly results are settled by the fourth week of each following month.

As you can see, acceleration to claims generally precedes recessions.


Also, acceleration and deceleration of unemployment claims has generally preceded comparable movements to the unemployment rate by 3 – 8 months (click for larger version).


In the above charts you can see, especially for the last three post-recession periods, that there has generally been a steep decline in unemployment claims and the unemployment rate followed by a “flattening” period of employment and subsequently followed by even further declines to unemployment as growth accelerated.

This flattening period demarks the “mid-cycle slowdown” where for various reasons growth has generally slowed but then resumed with even stronger growth.

Until late 2007, one could make the case (as Fed chief Ben Bernanke surly did) that we were again experiencing simply a mid-cycle slowdown but now those hopes are long gone.

Adding a little more data shows that in the early 2000s we experienced a period of economic growth unlike the past several post-recession periods.

Look at the following chart (click for larger version) showing “initial” and “continued” unemployment claims, the ratio of non-farm payrolls to non-institutional population and single family building permits since 1967.

The most notable feature of the post-“dot com” recession era that is, unlike other recent post-recession eras, job growth has been very weak, not succeeding to reach trend growth as had minimally accomplished in the past.

Another feature is that housing was apparently buffeted by the response to the last recession, preventing it from fully correcting thus postponing the full and far more severe downturn to today.

It is now completely clear that the potential “mid-cycle” slowdown that appeared to be shaping up in late 2007, had been traded for a less severe downturn in the aftermath of the “dot-com” recession, and now has we have fully entered, instead, a mid-cycle meltdown.

The Almost Daily 2¢ - Revealing The True Potential

I’m certain that anyone would find the depth and breadth of the below list of announced job cuts to be concerning… Knowing that these headlines came from a single 24 hour period is simply shocking.

Banking and Finance, Telcom, Mobile, Health, Pharma, Hardware, Education, Municipal, Manufacturing, Energy, Equipment, Construction, Retail… it’s simply across the board and it’s everywhere.

The vicious cycle is firmly in place and no state or city will be immune… no industry… no profession.

We are in the early stages of a truly fundamental shakeout that no amount of government intervention can prevent.

The route by which “shovel ready” infrastructure construction jobs puts millions of scientists, hospital workers, analysts, bankers, programmers, mobile and telcom technicians, business managers, energy workers and high-end retailers back to work is tenuous at best, even with a generous “trickle-up” multiplier effect.

No… the government spending will not succeed in stemming this tide.

But, let us pause and draw some confidence from the fact that the economy is not broken.

In fact, that recessionary “sting” is how you know it’s working… adjusting, reaching down… deep down to a new, more fundamental equilibrium and, inevitably, a healthy revelation of its true potential.

***

“Telstra mulls thousands of extra job cuts”
“Motorola Announces Another 4000 Job Cuts”
“Mercy Hospital included in Wheaton's plan for job cuts”
“Pfizer to layoff 800 scientists and technicians in research”
“Seagate Cuts 6% of Jobs Globally, Reduces CEO Pay 25%”
“University Of Tennessee Predicts 700 Job Cuts”
“Butler County sheriff plans 20 job cuts”
“Washington County job cuts announced”
“Hill-Rom to restructure, cut 300 jobs”
“Cummins To Cut 800 'Professional' Jobs By End Of Feb”
“71 effected by County School job cuts”
“Job Cuts At Yakima Catholic Diocese”
“Major job cuts in Tulare County to hit health care”
“ING cuts 750 US jobs due to economic slowdown”
“BofA confirms 139 job cuts in Ballantyne”
“2000 jobs to go after bank merger“
“Galveston College to talk about job cuts”
“Barclays plans thousands more job cuts”
“A Higher Estimate of Job Cuts at HMH”
“Cajundome Announces Job Cuts”
“Mount Carmel announces 300 job cuts”
“Dow Chemical to detail Texas job cuts”
“Crown job cuts 'strategic'”
“Hutchinson Tech sheds 1380 workers”
“TeliaSonera makes domestic job cuts”
“Georgia Power to eliminate up to 400 jobs”
“Tiffany cuts forecast, posts holiday-sales decline”
“San Jose Mayor says city should prepare for layoffs”
“Plantronics to layoff 18 percent of global workforce”
“Nortel workers in Richardson brace for layoffs”
“Rensselaer layoffs spark controversy”
“Russellville Plant Lays Off About 30 Workers”
“Google's Loss of Innocence: 100 Jobs Cut”
“Iron City Brewing to move production, lay off staff”
“Boat manufacturer cites poor economy in layoff of 55 workers”
“43 Lincoln City Jobs In Jeopardy”
“Deere & Co. announces layoffs at Dubuque site”
“Paper mill plans temporary layoffs”
“Oral Roberts University begins layoffs”
“Protective vest manufacturer to have temporary layoffs at Grainger County plant”