ADP National Employment Report: September 2012

Yesterday, private staffing and business services firm ADP released the latest installment of their National Employment Report indicating that the situation for private employment in the U.S. improved in September as private employers added 162,000 jobs in the month bringing the total employment level 1.99% above the level seen in September 2012.

Perusing the rest of the data in the ADP dataset you can see the the economy is currently showing the most growth for small to mid-sized service providing jobs with goods-producing jobs remaining near trough levels.

Look for Friday’s BLS Employment Situation Report to likely show somewhat similar trends.

Economic Jolt: Job Openings and Labor Turnover June 2010

Today, the Bureau of Labor Statistics released their latest monthly read of job availability and labor turnover (JOLT) showing that private non-farm job “openings” declined 2.04% since May but still remained 15.79% above the level seen last year, job “hires” increased 2.21% since May and rising 9.08% above the level seen last year, while job “layoffs and discharges” declined 16.97% over the same period.

Job “openings” (click chart below for larger version), the reports most leading “demand side” indicator, appears to be in the process of defining a bottom of sorts vacillating monthly between gain and loss but trending above the low levels seen during early 2009.



It’s important to understand that job “quits” are included as a component of the “separations” data series as “quitting” is a valid means of workers “separating” from employers but their inclusion tends to create an overall procyclical trend in what would otherwise be logically thought of as a countercyclical process (i.e. downturn leads to increase in separations not decrease).

Economic Jolt: Job Openings and Labor Turnover December 2009

Today, the Bureau of Labor Statistics released their latest monthly read of job availability and turnover (JOLT) showing that, on a year-over-year basis, private non-farm job “openings” declined 24.82%, job “hires” declined 9.44%, job “layoffs and discharges” decreased 12.85% and job quits declined dropping 16.68%.

Job “openings” (click chart below for larger version), the reports most leading “demand side” indicator, has now declined on a year-over-year basis for 28 consecutive months.

Sliding down that slope of the Beveridge curve, the decline in the job vacancy rate is clearly corresponding with an equal but inverse movement up in the general unemployment rate as can be plainly seen in the following chart (click chart for larger version).

Job “hiring” activity (click chart for larger version) has also been declining significantly with the latest results posting the 32nd consecutive decline on a year-over-year basis further confirming the tremendous weakness seen in the job market.

With the latest revisions by the BLS, job “separations”, whereby workers and their employers go their separate ways by one means or another (layoffs, retirement, termination, quitting, etc.), appear to be flattening as a result of nearly equivalent but opposing movements in quitting and layoff activity.

It’s important to understand that job “quits” are included as a component of the “separations” data series as “quitting” is a valid means of workers “separating” from employers but their inclusion tends to create an overall procyclical trend in what would otherwise be logically thought of as a countercyclical process (i.e. downturn leads to increase in separations not decrease).

As the economy slides further into recession and the employment situation worsens workers tend to reduce quitting activity presumably for fear that they could risk a long bout of unemployment and the latest results (click chart for larger version) confirm this with the some of the sharpest year-over-year declines on record.

Layoff activity, now separated into its own series and as you can see from the chart below is showing a dramatic surge that is roughly equivalent but opposite to the decline seen in quitting activity.

Envisioning Employment: Employment Situation December 2009

Today’s Employment Situation Report showed continued weakness with the unemployment rate holding steady at 10.0% while the Establishment survey showed a decline of 85,000 net non-farm jobs since November.

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 130 million non-farm jobs, we are currently at a literal level of employment first seen in February 2000 while as a ratio of the civilian population we are at the lowest level of participation seen since August 1986.

Further, 53 of the last 120 months showed declining jobs, easily one of the weakest decade long streaks in the post-war period with net monthly job losses occurring 44.5% of the time.

Finally, it’s important to recognize that today’s report brings the total private non-farm job losses to 7.340 million jobs or a 6.34% 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 32.44% or 1,121,000 jobs since then, appear to be headed still lower.

Also note that independently, “residential building” has lost 34.34% of its payrolls or 351,100 jobs since it peaked during September 2006 and that “residential specialty trade contractors” have lost 31.84% of its payrolls or 776,800 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 6.04%) 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.

Jobless Decade

With one month left to report, it’s clear that for the typical American worker this has been the worst decade in the post-WWII era.

The general economy was so weak, in fact, that throughout the 2000s non-farm jobs were shed on a month-to-month basis 44.5% of the time.

That’s an astounding number considering the fact that it is over twice as frequent as was witnessed during the 60s, 70s, 80s, and 90s and over 30% higher than in the 50s when the economy was primarily manufacturing based and experienced frequent and wide swings in labor.

Worse yet, there have been historically few net jobs created with only 464,000 added non-farm payrolls created since December 1999, the weakest performance seen by far in the post-WWII era.

Finally, this was the first decade on record where work age population growth outstripped job creation and not by a small margin.

Weekend Chat - Recession.... So?!

What is so bad about having a recession? Even a long harsh recession… aren’t we overreacting?

In any event, aren’t they just inevitable?

Is there any compelling evidence to suggest that the government can actually prevent or even quiet a recession (without creating larger problems further on up the road)?

Economic Jolt: Job Openings and Labor Turnover July 2008

Yesterday, the Bureau of Labor Statistics released their latest monthly read of job availability and turnover (JOLT) showing that, on a year-over-year basis, private non-farm job “openings” declined 18.23%, job “hires” declined 15.53%, and “separations” declined 3.24% led by a 10.66% drop in “quits”.

These results are clearly indicating that the slowdown in the employment market has developed substantially over the last six months and now is quickly accelerating down into territory typical of recessionary contraction.

Job “openings” (click chart below for larger version), the reports most leading “demand side” indicator, has now declined on a year-over-year basis for five consecutive months strongly suggesting that the private sector is planning to curtail future hiring activity.

Sliding down that slope of the Beveridge curve, the decline in the job vacancy rate is clearly corresponding with an equal but inverse movement up in the general unemployment rate as can be plainly seen in the following chart (click chart for larger version).

Job “hiring” activity (click chart for larger version) has also been declining significantly with December’s results posting the eighth straight decline on a year-over-year basis further confirming the recent weakness seen in the job market.

Job “separations”, whereby workers and their employers go their separate ways by one means or another (layoffs, retirement, termination, quitting, etc.), are also declining primarily due to the inclusion of “quitting” activity.

It’s important to understand that job “quits” are included as a component of the “separations” data series as “quitting” is a valid means of workers “separating” from employers but their inclusion tends to create an overall procyclical trend in what would otherwise be logically thought of as a countercyclical process (i.e. downturn leads to increase in separations not decrease).

As the economy slides into recession and the employment situation worsens workers tend to reduce quitting activity presumably for fear that they could risk a long bout of unemployment and the latest results (click chart for larger version) confirm this with the sharpest decline on a year-over-year basis seen since August of 2003.

Envisioning Employment: Employment Situation August 2008

Today’s Employment Situation Report showed unequivocal signs of a slumping recessionary economy with the Household survey indicating a decline of 342,000 in employment and a 592,000 increase in unemployment since July resulting in an unemployment rate of 6.1% while the Establishment survey showed a decline of 84,000 nonfarm jobs.

With the latest news littered with reports of job cuts and layoffs cutting across many regions and industries the recessionary job loss trend is now firmly established and only the extent is in question.

Additionally, along with the weak results seen in July come additional revisions to June and July resulting in 679,000 private non-farm jobs being shed this year and 772,000 from the peak set last November.

The report also confirmed declining below trend growth overall and substantial declines in sectors directly related to residential real estate and construction.

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 March 2006 and declined 16.42% or 567,400 jobs since then, appear to be headed lower.

Also note that independently, “residential building” has lost 18.27% of its payrolls or 186,500 jobs since it peaked during September 2006 and that “residential specialty trade contractors” have lost 15.89% of its payrolls or 388,000 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.

As you can see, the “directly impacted” payrolls are declining at an increasing rate and that overall private non-farm payrolls, while continuing to increase, are doing so at a declining rate.

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% of Total Private Non-Farm Payrolls and now contracted to a degree similar to 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 latest expansion of payrolls has not been strong.

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 now seems to be coming down.

As you can see, although 3.06% of the population currently is employed in a construction occupation, there is a chance that this percentage could drop below the trend.

Of course these lost jobs could shift to some other part of the labor force but the point is, the current ratio appears poised to drop and with it will inevitably go many construction jobs.

Mid-Cycle Meltdown?: Jobless Claims September 03 2008

Today, the Department of Labor released their latest read of Joblessness showing seasonally adjusted “initial” unemployment claims increased 15,000 to 444,000 from last week’s revised 429,000 claims while “continued” claims increased 6,000 resulting in an “insured” unemployment rate of 2.6%.

It’s very important to understand that today’s report continues to reflect employment weakness that is strongly consistent with past recessionary episodes and that this signal is now so strong and sustained that a contraction in the economy is fundamentally certain.

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.

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.

So, looking at the post-“dot com” recession period we can see the telltale signs of a potential “mid-cycle” slowdown and if we were to simply reflect on the history of employment as an indicator of the health and potential outlook for the wider economy, it would not be irrational to conclude that times may be brighter in the very near future.

But, adding a little more data I think shows that we may in fact be experiencing 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.

One 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.

I think there is enough evidence to suggest that our potential “mid-cycle” slowdown, having been traded for a less severe downturn in the aftermath of the “dot-com” recession, may now be turning into a mid-cycle meltdown.