Tuesday, December 30, 2008

Employment is Looking Grim

Wherein I argue with myself ....

One of my central ideas of the current downturn is employment will experience about 6-9 months of terrible news and then get better -- or at least be less bad than before. There are several reasons for this theory:

1.) The worse rate of job losses over the last 60 years occurred in a recession in the 1950s when the economy lost 50% of the jobs it created in the previous expansion.

2.) Over the last few months we have seen an acceleration of job losses. I think what is happening is companies are "ripping the bank-aid off" -- getting the pain out at the end of a terrible year. Essentially, management is sitting in a board room and saying, "this year already sucks, let's just get the pain over with."

Here is something else to consider. Starting with the expansion of the 1980s the total number of establishment jobs created has decreased with each expansion. In other words, the expansion of the 1990s created fewer jobs than the expansion of the 198os and the expansion of the 2000s created fewer jobs than the expansion of the 1990s. I think what is happening is companies have learned to cope with less -- that it, they have continually whittled down their employment needs, hiring people only when absolutely necessary. A big boost to this theory is the mammoth increase in productivity we've seen over the same time, largely as a result of technology. People can simply do a whole lot more work; companies don't need armies of employees to perform a host of jobs. All this means that each person companies hire are that much more valuable to the company, making lay-offs that much harder. So when we do have lay-offs, times are really bad.

If both of these are true we have at most 6 months left of horrible employment/job market related news to go through.

However, the economy likes to make an ass out of economists whenever possible. So let's argue the contrary position.

The official jobless rate climbed to a 15-year high of 6.7% in November from 4.7% a year earlier. But that doesn't include people who have given up looking for work or those forced to work fewer hours as business conditions soured.

By adding underemployed and disaffected workers to the total, the so-called alternative unemployment rate stood at 12.5% in November, the highest since the Labor Department began tracking the series in January 1994. That's up from 11.8% in October and 8.4% a year earlier.

"We have obviously seen a very rapid deterioration in the employment situation," said Sophia Koropeckyj, an economist at Moody's Economy.com. "There are fewer people working and the people who are working are working fewer hours."

She said the alternative jobless rate could eventually hit 15%. The U.S. will release its December employment report on Jan. 9.

"Our expectation is that the recession could go on for another year and the unemployment rate will not reach a peak until 2010," she said.

Here is the accompanying graphic:

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There are several indicators from the BLS that confirm the difficulty in the labor market. Here is a chart of the number of people who are working part-time for economic reasons:

Click for a larger image

The BLS defines these people thusly:

Over the month, the number of persons who worked part time for economic reasons (sometimes referred to as involuntary part-time workers) continued to increase, reaching 7.3 million. The number of such workers rose by 2.8 million over the past 12 months. This category includes persons who would like to work full time but were working part time because their hours had been cut back or because they were unable to find full-time jobs.

This number has been climbing sharply over the last year and is looking to get worse. This number tells us the jobs just aren't out there.

Here is a chart of people who aren't in the labor force although they searched for work and are available to work:

Click for a larger image

Again - this number is spiking and is near its highest level in 15 years.

And the length of time people are unemployed is increasing. Here is a chart for the number of people who were unemployed for 5-14 weeks:

Here is a chart for people who were unemployed for 15 weeks and longer:

And here is the chart for people who are unemployed for 27 weeks and longer:

All three of the above charts are near multi0decade highs.

So, on my side I have history and a theory about employment trends in my lifetime. The graphs above indicate times are already bad and could get worse.

Frankly -- who the hell knows what is going to happen at this point.