Envisioning Employment: Employment Situation November 2009

Today’s Employment Situation Report showed an unexpected turn in the direction of a jobs recovery with the unemployment rate declining to 10.0% while the Establishment survey showed a decline of only 11,000 net non-farm jobs since October.

Although this is a clear turn for the better for jobs and likely indicates that we are essentially in the trough of the non-farm payroll decline, 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 March 2000 while as a ratio of the civilian population we are at the lowest level of participation seen since December 1986.

Further, 53 of the last 119 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 job losses to 7.288 million jobs or a 6.29% 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 31.74% or 1,096,900 jobs since then, appear to be headed still lower.

Also note that independently, “residential building” has lost 33.94% of its payrolls or 347,000 jobs since it peaked during September 2006 and that “residential specialty trade contractors” have lost 31.02% of its payrolls or 756,700 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 6.05%) 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.

Construction Spending: June 2009

Today, the U.S. Census Bureau released their June read of construction spending again demonstrating the significant extent to which private residential construction has suffered during this historic downturn particularly for single family structures.

Total residential construction spending fell 30.03% as compared to June 2008 and a whopping 63.62% from the peak set in March 2006.

Worse off though was private single family residential construction spending which declined 51.11% as compared to June 2008 and a truly grotesque 79.86% from the peak set in February 2006.

Non-residential construction spending, currently accounting for just under half of all private construction spending, posted another year-over-year decline of 4.78%.

The following charts (click for larger versions) show private residential construction spending, private residential single family construction spending and private non-residential construction spending broken out and plotted since 1993 along with the year-over-year and peak percent change to each since 1994 and 2000 – 2005.

Envisioning Employment: Employment Situation June 2009

Today’s Employment Situation Report continued to reflect a severely contracting recessionary economy with the unemployment rate increasing to 9.5% while the Establishment survey showed another notable decline of 467,000 non-farm jobs over the same period.

As I had noted in a prior post, we are quickly approaching the second seasonal unemployment spike for the year (mid-January and mid-July are the typical unemployment spikes) that, in all likeliness, will bring a notable degree of re-acceleration to unemployment.

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 30.21% or 1,043,000 jobs since then, appear to be headed lower.

Also note that independently, “residential building” has lost 31.45% of its payrolls or 321,600 jobs since it peaked during September 2006 and that “residential specialty trade contractors” have lost 29.88% of its payrolls or 729,100 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 6.12%) 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.

Envisioning Employment: Employment Situation December 2008

Today’s Employment Situation Report showed continued unequivocal and truly dramatic signs of a severely contracting recessionary economy with the Household survey indicating a decline of a whopping 806,000 in employment and a 632,000 increase in unemployment since November resulting in an unemployment rate of 7.2% while the Establishment survey showed a massive decline of 524,000 non-farm jobs over the same period.

Further, there were considerable revisions to prior months with October actually registering a whopping 423,000 non-farm job decline from September and November registering 584,000 non-farm job decline from October resulting in over 1,934,000 million non-farm jobs lost in just four months and 2,691,000 private non-farm jobs shed so far this year.

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 March 2006 and declined 20.79% or 718,000 jobs since then, appear to be headed lower.

Also note that independently, “residential building” has lost 23.42% of its payrolls or 239,000 jobs since it peaked during September 2006 and that “residential specialty trade contractors” have lost 19.93% of its payrolls or 486,500 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 6.08%) 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 now seems to be coming down.

As you can see, although 2.91% of the population currently is employed in a construction occupation, there is a chance that this percentage could drop far below the trend.