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More Seniors than Teens Now in the U.S. Labor Force

July 13th, 2010 Michael McDonough Comments off

**Story by Bloomberg’s Interactive Insight Desk…

U.S. employees old enough to retire are outnumbering their teenage counterparts for the first time since at least 1948 when Harry Truman was president, a sign of how generations are now having to compete for jobs.

Rest of the story and interactive graphics: http://www.bloomberg.com/insight/teens.html

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Categories: Labor Market, US Tags: , , ,

Monthly Job Growth Almost Never Exceeds 400K

July 1st, 2010 Michael McDonough Comments off

Historically, payroll growth rarely exceeds 400K in any given month, even in the best of times, not good news considering the US has lost 8mn jobs since the start of the recession. Some analysts have discussed a best case scenario where payrolls rise by 1mn a month, bringing us back to the pre-recession peak within eight months, however, in reality this is a near impossibility. Since 1939 there has been only one instance of monthly job growth above the million mark, and as it turns out that stellar number was caused by 700,000 AT&T workers returning from a 22 day strike–meaning far fewer than 1mn jobs were in reality created. In a much more likely scenario where payroll growth averages 200K a month it would take over three years to return to the pre-recession peak; this figure doesn’t even count population growth that has taken place during that period. The attached chart breaks down the frequency of monthly payroll gains and losses from 1939 to now, and certainly doesn’t paint a rosy picture for the labor market.

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Categories: Labor Market, US Tags:

Unemployment Rate Unlikely to Budge until 3mn New Jobs Created

June 30th, 2010 Michael McDonough Comments off

Disheartened job seekers who fled the labor market in mass during the height of the recession have begun to return putting pressure on the US unemployment rate.   Based on a simple interpolation the U.S. labor force today should total 157.2mn, however due to the exodus of job seekers the labor force presently amounts to only 154.4mn a difference of 2.8mn. Calculating the unemployment rate on this ‘would-be’ labor force would increase the ratio to 11.3% from its current level of 9.7%.  Meaning until the nearly 3mn gap in the labor force is closed the unemployment rate will remain under constant pressure, especially if job seekers return fast than jobs are being created, a very likely scenario.  It’s not surprising that the current consensus forecast for June’s unemployment rate is for an increment to 9.8% from 9.7%. The charts below show the ‘would-be’ labor force level and the estimated unemployment rate based on this level versus the actual rate.  Keep in mind that the recent upswing in non-farm payrolls has benefitted from U.S. census hiring, and should begin to recede in June.

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Preparing for Retail

May 14th, 2010 Michael McDonough Comments off

On the surface, a recovery in retail sales is not only a harbinger for stronger economic growth, but could prove to be the missing link for job creation (see chart).  Climbing out of the deepest recession since the Great Depression, consumption growth has been surprisingly tepid, at least partially due to companies’ lack of confidence in the current recovery.  This is best demonstrated by surging temporary employment—first in first out employees—while overall hiring is lagging.  While forecasted gains in April’s retail sales, released 8:30 a.m., (+0.2% m/m, +0.4% ex-autos) could help bolster confidence, concerns linger that these improvements may be artificial, fueled by temporary government stimulus, and not be broad based enough to support a genuine recovery.  Both sides of this argument likely have some merit, but I anticipate marginal gains in consumption will continue over the months ahead as consumer confidence strengthens, and as consumer credit levels revert back to their historical norms, after significant deleveraging.

Source: Bloomberg

Thinking quantitatively about this my mind displays Excel’s infamous ‘circular reference’ warning.  People need jobs to consume, and companies need sales to hire.  If companies don’t hire, then people have no income to consume.  While you may be familiar with the adverse feedback loops that helped bring down the market, this is an advantageous feedback loop, where higher sales or faster hiring will support the other factor.  The bottom line is, it will be important to watch whether or not April’s gains are limited to a small subset of sectors, or are more broad-based.  Strong broad based growth will have a much stronger impact on business sentiment, consumption growth’s sustainability, and the likelihood of job creation.

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Initial Jobless Claim’s ‘New Equilibrium’ Can Benefit Payrolls

May 6th, 2010 Michael McDonough Comments off

As tomorrow morning’s employment report approaches I wanted to take a quick look at the relationship between the four week moving average of initial jobless claims and the change in payrolls. As a general rule of thumb significant sustained job growth cannot occur until claims move below 400K. However, in March payrolls grew at 162K, while initial claims 4wk moving average remained well above the break-even point at 448K. Since then the average has increased to 459K, yet the consensus forecast is for job growth in April of 190K, with more upside risk than down.

So what happened, has the long-standing relationship gone kaput? In actuality the relationship between claims and payrolls has been rather dynamic throughout its history. Over the past decade the magic number has been 400K (as can be seen in the chart below), but looking at data from only the 1990’s the break-even point was much closer to 430K. It is possible that in this ‘new economy’ the break-even point for claims has once again begun to shift–in favor of bigger payroll gains. Nomura U.S. economist, Zach Pandl, recently highlighted this possibility in a report to clients titled ‘450 is the new 400’. In it Zach said, “Despite these historical patterns, we believe that, today, a weekly claim level of 450,000 is in fact consistent with positive job growth because of structural changes in the labor market.” He accredits this phenomenon with relatively low separations due to reduced quitting and fewer layoffs, which in turn creates higher levels of net hiring. I tend to see some upside for employment over the short-term; however, I still believe monthly gains ex-census will moderate as the year progresses. The current consensus forecast for the change in private payrolls is +98K for April. 

Unprecendented productivity gains continue to place pressure on hiring, with the prelminary Q1 reading coming in at 3.6%, compared to a consensus forecast of 2.6%.  For more reading on productivity and hiring please see this piece:  ‘U.S. Companies Investing in Technology Faster than Hiring’

Initial Jobless Claims 4wk MA(x-axis) Vs. Change in Payrolls (y-axis) 2000-Present

Source: Department of Labor

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Payrolls Indicate to Markets; Strong Labor Recovery Not Just Yet

April 2nd, 2010 Michael McDonough Comments off

Payrolls moved up by +162K in March, compared to a forecast of +184K.  Combined January and February revisions totaled an additional 40K jobs created.  March added 48K census workers making the ex-census change in payrolls a modestly strong +136K.  It is impossible to determine to what extent weather had on this report, but I expect payrolls should maintain modest growth, at best, over the next several months (ex-census).  The unemployment rate remained steady at 9.7%, as the workforce continues to increase.  This report is essentially neutral for the market.  Long term unemployment continued to tick up, while average hourly earnings fell -0.1% from last month.  Hours worked remain relatively low at 34.0%, and will likely move up a bit more before we see a big turn in hiring.  While overall these modest gains are positive, it is unlikely it will have a significant effect on Fed policy over the short-term.

On another note, temp employment continues to tick up, however, it has begun to come off of its recent highs.  This index tends to be a good forward looking indicator toward the overall payroll number:

Source: BLS

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Could Higher Industrial Production Result in Less Hiring?

March 15th, 2010 Michael McDonough Comments off

February’s surprise 0.1% increment in industrial production came despite severe winter weather during the month that was expected to hamper production.  Amongst the index’s biggest gainers were computers and information processing equipment, which each rose roughly 1%.  As Bloomberg put it these increments ’signal the pickup in U.S. business investment is being sustained’.  However, could these gains come at the expense of job gains?  Afterall, one of the primary functions of computers and ’information processing equipment’ is to bolster productivity. And let us not forget, productivity gains have exploded since the onset of the financial crisis, while employment has fallen off a cliff.  It may be too early to tell, but the possibility exists that companies could be investing in new cheaper technology rather than investing in new expensive employees to support output and profits–a trend which could continue for a while…

U.S. IP y/y:

Source: Bloomberg

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Where’s the Unemployment Rate in Your State?

March 10th, 2010 Michael McDonough Comments off
Here’s the latest state-by-state unemployment data from the BLS.  The arrows indicate an increase or decrease in the rate from December 2009 to January 2010. 
Source: BLS
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Potentially Good News For Jobless Bankers & Lawyers

March 9th, 2010 Michael McDonough Comments off

After a bit of a lull in 2009, M&A activity–a gauge toward GDP growth–has begun to gain some momentum this year.  Unsurprisingly, this uptick in M&A activity coincides with gains in business and professional services employment; a series that includes lawyers and bankers.

M&A Activity vs. Business and Professional Services Employment

Source: Bloomberg

The upward trend for M&A is generally expected to continue as companies  continue spending cash they have hoarded since the onset of the economic crisis. More M&A should continue to bode well for business and professional services employment,;try running a M&A deal without several teams of lawyers…  And of course without senior bankers,  and their hoards  of junior banker minions working almost non-stop to create a mountain of pitch books, there would be no deals.  So which companies will these bankers be targeting?  Below is a table from Gridstone Research that highlights the top 35 commercial and industrial companies with the largest cash, short-term investments and marketable securities positions:

Source: Gridstone Research

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Temp Employment Pointing Toward Robust Payrolls

March 5th, 2010 Michael McDonough Comments off

Non-farm payrolls fell -36K, handily beating the latest consensus forecast of -68K. The unemployment rate was steady at 9.7%.  The market can expect some volatility from government census worker hirings over the months ahead.  The effect should be positive for the next couple months, but eventually turn negative as these workers are let go.

One of the bigger surprises in the report was a +1,000 increment in manufacturing payrolls, versus and expected decline of -15,000. Manufacturing’s is a much smaller portion of the U.S. economy compared to years past, but still holds much of the economy’s cyclicality.

Looking at temp employment, one of my favorite leading indicators toward payrolls, we can see a strong upward trend beginning in September 2008.  As the chart below illustrates, temp employment, the white line, began falling well before total payrolls, the white line,  during the recent economic crisis.  But, since September temp employment has begun to surge.  Temp employment growth could eventually lead to a jump in total payrolls, as companies who are optimistic, yet uncertain, about the future tend to hire temps before actually filling full time positions.  Temps are also the first employees to be let go as companies become pessimistic, yet uncertain, about the future.  284K temps have been hired since September’s low.

Total Payrolls (orange line) vs. Temp Employment (white line)

Source: Bloomberg

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