Wednesday, February 15, 2012

Why the Job Growth Now?

The last few employment reports have been good -- with an eye toward getting better.  However, a questions remains -- why now?  Let's take a look at a few fundamental reasons.

Let's start with initial claims for unemployment.  Another way to think about this number is "the current rate of job destruction" -- it tells us the pace at which businesses are getting rid of employees.  Conversely, it can also be thought of as an inverse of labor demand.  For the last few months, we've seen this number move below 400,000, which is the commonly accepted level for an indication that job growth is about to pick up.

Total private layoffs and discharges are also near lows, bolstering the argument that businesses are far more in need of labor than a few years ago.

Also note the continuing increase in job openings.  While it is still at low levels, this nume\ber has reached levels where in the previous recession job growth started to pick-up.

Above are three measures of productivity -- output per hour of all employees, output per person and total business output.  All three charts are using the percentage change from the previous year measure.  All have also been dropping, indicating that businesses are getting less this year than last out of their workforce.  This tells us that businesses need to add to their employees if they want to increase output.