New Jobless Claims Aren’t As Good As They Look

The Department of Labor announced yesterday that new jobless claims have fallen to 305,000 for the week, a six-year low.  Unfortunately, the new jobless claims figure isn’t as reliable an indicator of labor market trends as it used to be.  It says more about the continued decline in layoffs than it does about a surge in hiring.  The biggest problem in today’s labor market is a weak hiring rate for employers.  So while a lower level of new jobless claims is better than a higher level, I don’t expect this to signal a boom in job creation.

To see why layoffs aren’t the problem, as many workers were laid off in the five years since the Lehman collapse as during the real estate boom of 2003-2007.  In the five years between 2003 and 2007, in the midst of a real estate boom and economic recovery, when the unemployment rate averaged 5.2%, there were 1.86 million layoffs per month, on average.  In the five years since the Lehman collapse in August 2008, including the biggest recession since the Great Depression, when the unemployment rate averaged 8.6%, there were also 1.86 million layoffs per month, on average.  While layoff rates were elevated during the second half of 2008 and all of 2009, over the past three years layoffs have been 8.8% lower than pre-recession levels and continue to decline.

Over the past three years during our tepid economic recovery, only 4.23 million people have been hired per month, on average, compared to 5.1 million people per month in 2003-2007. 870,000 fewer people have been hired each month over the past three years compared to 2003-2007.  This great slowdown in hiring, which represents a decline of 17% compared to the previous economic recovery, is the biggest challenge facing the labor market and the economy.

Unemployment insurance data are less relevant in 2013 because of the narrow focus on relatively recent job losers.  New labor market entrants and re-entrants to the labor force, comprise about half of the unemployed but are ineligible for unemployment insurance.  Longer term unemployed workers and jobless workers who have given up their job search and dropped out of the labor force are also ineligible for UI.  For unemployed new entrants and re-entrants to the labor force, and for the millions of jobless workers who have dropped out of the labor force, a surge in hiring is needed to bring them back to work.  So while there were 3.8% fewer layoffs in the past 12 months compared to one year earlier, the fact that hiring only increased by 1.1% over the same period means that employment rates will remain low until businesses increase the pace of their hiring.

Unemployment insurance data are also less relevant in today’s economy because the fraction of unemployed workers eligible for state unemployment insurance programs is at an all-time low.  The following chart shows the percentage of unemployed workers who are job losers and have been unemployed for 26 weeks or less.  These two conditions are good proxies for the key determinants of eligibility for most state UI programs.* Since 1980, in non-recession years, about 40% of unemployed workers would satisfy these requirements.  During recession years, about 45% of the unemployed are job losers in their first 26 weeks of unemployment.  Over the past 3 and one half years, however, only about one-third of unemployed workers have been relatively recent (26 weeks or less) job losers.

losers

The fraction of jobless workers who are eligible for UI is even smaller.  If one includes workers who have dropped out of the labor force in the past year but are available for work as “jobless”, only 26% of “jobless” workers satisfy the conditions required by most state UI programs.

While new jobless claims data provide some information about the rate at which workers are losing jobs, and whether job losers appear to be finding work before filing for UI benefits, yesterday’s new claims figures must be interpreted carefully.  The labor market of 2013 is very different from the pre-recession labor market.  Layoffs continue to decline but have not coincided with commensurate increases in hiring in a weak recovery.  Most jobless workers are long-term unemployed, new-entrants or re-entrants to the workforce unable to find work, or those who have given up job search altogether and are no longer labor force participants.  Employers have hired 870,000 fewer workers per month over the past three years than they were prior to the recession.  Until hiring levels approach the 5 million hires per month that were common in 2003-2007, job growth will continue to disappoint.  Slightly lower new jobless claims per week is just one small step in the right direction.

*Unemployed workers are eligible for Federal UI benefits if they are unemployed longer than 26 weeks and reside in states where unemployment rates are sufficiently high.  Most state UI programs allow up to 26 weeks of benefits but they need not be the first 26 weeks of a worker’s unemployment spell and benefits are only available for job losers.

The Welch Consulting Employment Index Continued to Rebound in October

The Welch Consulting Employment Index is 94.8 for October 2012, up 1.4% from October 2011 (seasonally adjusted).  An index value of 94.8 means that full-time equivalent employment (from the BLS household survey) is 5.2% below its level in the base year of 1997, after adjusting for both population growth and changes in the age distribution of the labor force.  The index is at its highest level since March 2012.  The index is 2.0% higher than its level two years ago and is 2.9% above its lowest level ever reached in July 2011.  The index had fallen sharply in the spring and early summer but has recovered all of those losses over the past two months.

The Welch Consulting Employment Index, disaggregated by gender, shows that the labor market recovery has been stronger for men than for women since 2009.  The index for men is 92.6 for October 2012, up 1.9% over the past twelve months, and up 3.0% since October 2009.  The index for women is 97.5 for October 2012, which is down slightly over the past month, and up much less (0.9%) over the past twelve months and past three years (0.7%) than it has been for men.  Despite the difference in trends over the past three years favoring men, the index for men remains well below the index for women.  This is because men lost many more full-time equivalent jobs (a decline of 9.5%) than women (a decline of 5.0%) from the beginning of 2008 through the fall of 2009.

Technical Note: Full-time equivalent employment equals full-time employment plus one half of part-time employment from the BLS household survey.  The Welch index adjusts for the changing age distribution of the population by fixing the age distribution of adults to the 1997 base year.  The Welch Index adjusts for population growth by fixing total population to its 1997 level.  Seasonal effects are removed in a regression framework using monthly indicator variables.

May 2012 Welch Employment Index: The Labor Market Recovery Has Slowed

The Welch Consulting Employment Index is 94.5 for May 2012, up 1.1% from May 2011 (seasonally adjusted).  An index value of 94.5 means that full-time equivalent employment (from the BLS household survey) is 5.5% below its level in the base year of 1997, after adjusting for both population growth and changes in the age distribution of the labor force.  The index is up about 2.6% from its trough in July 2011, but almost all of the gains were in the second half of 2011.  The index is down slightly over the past three months.  The current value of the index is 6.9% lower than the pre-recession peak reached in January 2007.

The Welch Consulting Employment Index, disaggregated by gender, shows that the labor market recovery has been weaker for women than men over the past year.  Of course, men lost more jobs than women during the first year of the recession and therefore had more ground to make up in the past three years.  The index for men is 92.3 for May 2012, up 1.5% over the past twelve months, but down 7.7% from its pre-recession peak.  The index for women is 97.3 for May 2012, up 0.5% over the past twelve months, but down 6.1% from its pre-recession peak.  Finally, since President Obama took office in January 2009, the employment indices are down 1.6% for men and down 3.5% for women.

Technical Note: Full-time equivalent employment equals full-time employment plus one half of part-time employment from the BLS household survey.  The Welch index adjusts for the changing age distribution of the population by fixing the age distribution of adults to the 1997 base year.  The Welch Index adjusts for population growth by fixing total population to its 1997 level.  Seasonal effects are removed in a regression framework using monthly indicator variables.

The Slowdown in Government Hiring

Employment in the public sector has declined over the past three years as state and local governments struggle with budget shortfalls.  Public sector employees are unlikely to quit their jobs and government agencies lay off workers much less frequently than private sector firms.  Consequently government agencies adjust to budget reductions by larger reductions in the rate at which workers are hired.

The following chart shows that public employees are about 70% less likely to quit their job than private sector employees.  It also indicates that quit rates declined in the recession in both the government and private sectors.  Workers are more willing to stay in their current job as the prospect of a better job offer becomes less likely.

Layoff rates are also considerably lower in the government sector than in the private sector.  In 2010 the layoff rate in government peaked at about half the private sector rate.  In all other years over the past decade the public sector layoff rate was about 70% lower than in the private sector.

Government workers are much less likely to quit their jobs and government agencies are more reluctant to lay off workers than in the private sector.  Hiring reductions have become a primary way that government entities adjust to budget reductions.  The government hiring rate declined by 26.4% from 2007 to 2011 compared to a 14.7% decline in the private sector over the same period.  In the first quarter of 2012 government hiring was 18% below the 2007 rate.

The decline in government hiring is one reason why the unemployment rate has remained relatively high over the past few years.   According to the BLS JOLTS data about four million government workers were hired per year from 2004 to 2007.  In 2011 just over 3.2 million workers were hired into government jobs representing a decline of about 836,000 over the pre-recession average.

Alternatively, the Wall Street Journal’s Justin Lahart calculated that the unemployment rate would be 7.1% if there had been no cuts in state and local government jobs.  Lahart acknowledged that his calculations are based on the smaller and noisier household survey which may be poorly suited for tracking fluctuations in the number of government employees over time.

A 1% decline in the unemployment rate requires an employment increase of 1.54 million which is about 7% of total government employment.  A 7% increase in government employment would result in the highest government share of employment in three decades.  It seems plausible that budget cuts reduced government employment by an amount closer to 836,000 than 1.54 million workers.

Mark Zuckerberg and the Run for the Roses

When I’ll Have Another crossed the finish line at Churchill Downs to win the 138th Kentucky Derby four other horses were within a fraction of a second of the finish line.  The second place horse, Bodemeister, led for most of the Derby and finished just 12 feet behind the winner of the mile-and-a-quarter race.  Bodemeister ran the race about two tenths of one percent slower than I’ll Have Another but earned about 68% less than the winner.  The fifth place horse, Creative Cause, was less than one percent slower but earned $66,000, or 95% less than the winner’s earnings of about $1.36 million.

The payoffs in thoroughbred racing are highly skewed.  Fourteen of the nineteen horses that entered the Run for the Roses earned nothing for their efforts.  The third place purse is half of second place and fourth place pays half as much as third place despite the fact that there was little objective difference in the performance of the second through fourth places competitors on Saturday.  The owners of the Kentucky Derby winner not only earn much more on race-day for a slightly better performance than their competitors, they will receive more in future stud fees because their horse won one of the jewels of racing’s Triple Crown.

There are similarities between the payoff structure for thoroughbreds and entrepreneurs in today’s information technology based economy.  The founder and owner of a company with better ideas and better methods for generating revenue from those ideas will earn disproportionately more than the owner of the second place company, even if the objective difference in the quality of their product is quite modest.  In that sense Mark Zuckerberg and I’ll Have Another have much in common.

Facebook is the most popular social network sites with over 900 million users last quarter.  The value of social networking increases with the number of site users, so relatively minor differences in perceived quality can attract far more users and profits than competing sites.  Moreover the technology allows social networking sites to avoid the congestion problems faced by traditional brick and mortar businesses.  Yogi Berra never would say “Nobody goes there anymore.  It’s too crowded.” about a social networking site.

Mark Zuckerberg is about to begin his Facebook IPO roadshow this week.  Experts say that Facebook’s valuation as of its initial public offering could be as high as $96 billion.  Mark Zuckerberg will become one of the world’s wealthiest individuals because he developed a site that was perceived to be better than its competitors.  In social networks, as in thoroughbred racing, everyone wants to be on the winning team.

Falling Unemployment and a Shrinking Labor Force

The unemployment rate fell in every state but New York in the past year based on seasonally adjusted data. In 19 states the unemployment rate fell by one point or more.  The largest declines were in Alabama and Michigan, where the unemployment rate fell by two percentage points over twelve months.

Some of these apparent improvements in labor market conditions are exaggerated by declining labor force participation.  If a state’s unemployment rate falls because discouraged workers stop looking for work and drop out of the labor force or because people leave the state, the economic news is mixed.  In 13 of the 19 states with the biggest drop in their unemployment rate the labor force also declined.  In two states, Alabama and Arizona, all of the unemployment reduction was attributed to a shrinking labor force, and in Nevada more than 90 percent of the reduction in unemployment is due to a shrinking labor force.

Facts about Women’s Job Losses

The Romney Presidential campaign has correctly observed that men’s job losses tended to occur earlier in the 2008-2009 recession while women have lost more jobs than men since January 2009. The employment of women in the private sector fell by about 252,000 from January/February 2009 to January/February 2012 (BLS establishment survey). There are, however, substantial differences in the magnitude of job losses and gains by industry. For example, women’s employment in the health care industry increased by almost one half million and by 224,000 in temporary help agencies. In all other private sector industries women’s employment fell by 975,000 over the past three years.

Private Sector Job Losses Highest in Retail Trade

The following table presents information on selected private sector industries where women’s employment has fallen disproportionately over the past three years.

Selected Private Sector Industries with Substantial Declines in Women’s Employment January/February 2009 to January/February 2012

Industry

Employment Change

% Change in Employment

Retail Trade

-260,000

-3.51%

Telecommunications

-87,000

-23.1%

Publishing

-56,000

-14.5%

Real Estate

-48,000

-6.45%

Apparel Manufacturing

-22,000

-18.1%

Air Transportation

-16,000

-8.76%

Some of the jobs lost by women in the past three years, such as those in real estate, retail trade and air transportation are likely to return as the economy recovers. The steep percentage declines in employment in industries adversely affected by international trade and technological change are less likely to be reversed in an economic recovery.

Going Postal

The BLS data also indicates that women’s employment in the public sector declined by about 448,000 over the past three years. The following table shows that while there were small declines in state government and a modest increase in most of the federal sector, women’s employment at the U.S. Postal Service dropped sharply, by almost 35%, in just three years. Over 96% of the jobs lost at the USPS were held by women; while almost 35% of all women at the USPS lost their jobs the employment of men fell by less than 1% in the past three years.

Declines in Women’s Employment in the Public Sector

January/February 2009 to January/February 2012

Industry

Employment Change

% Change in Employment

U.S. Postal Service

-109,000

-34.9%

All Other Federal Government

+51,000

+5.46%

State Government

-12,000

-0.43%

Local Government Education

-204,000

-3.33%

Other Local Government

-174,000

-5.68%

Much of the decline in public sector employment has been at the local government level. Women’s employment in public education fell by about 204,000 over three years, but this was a smaller percentage decline than in the rest of local government.

Conclusion

Women have lost more jobs than men over the past three years despite the fact that almost 80% of health care workers are women and almost half a million health care jobs for women were added over the past three years. Women have lost over 200,000 jobs in public education, but job cuts in local government have been larger (in percentage terms) outside of education where the majority of workers are men. In the past three years women have lost jobs disproportionately in retail trade, where men’s employment increased by a quarter million, and in telecommunications, publishing and real estate. The biggest gender gap in job losses, by far, is at the U.S. Postal Service where over 96% of job losses were suffered by women.

Technical Note: Employment figures compare the average of seasonally unadjusted data in January and February 2012 to the corresponding average in January and February of 2009.

In Majors Tiger Doesn’t Compare to Jack

Comparing great athletes across generations is often an entertaining conversation.  No such discussion has garnered more attention than comparisons of Tiger Woods and Jack Nicklaus.  Comparing the two greatest golfers in the past 50 years is like asking a Chicago Bears fan whether Walter Payton or Gale Sayers was the better running back.  Comparisons are complicated by improvements in equipment, changes in training techniques, and differences in the strength of each golfer’s competition.  My comparison uses the World Golf Rankings methodology and leaves no doubt that Jack Nicklaus’ record in major championships is superior to Tiger’s, at the same point in their careers.

The World Golf Rankings award 100 points to a golfer who wins a major tournament, 60 points for second place, 40 for third, 30 for fourth and 24 and 20 points for fifth and sixth place finishes.  The points drop steeply with rank order finish with 1.5 points awarded to any golfer who made the cut and finished 60th or lower in the tournament.  This system rewards winning and competing for a championship more than consistent top ten finishes.  For example a golfer who wins one of the major championships but misses the cut at the other three earns more points for the year than a golfer who finished fifth in all four majors.

Jack Nicklaus won his first major at the 1962 U.S. Open and Tiger Woods won his first at the 1997 Masters, 35 years later.  Since then Tiger has played in 57 major championships (and missed four due to injuries).  Over that span Woods earned 33.8 points per major played, a remarkable record but far less than Nicklaus’ 45.3 points per major over a comparable span of 57 tournaments.  In other words Nicklaus averaged better than a third place finish in majors over nearly 15 years, using a scoring system that penalizes performances that are less than spectacular.

The World Golf Rankings takes a weighted average of the past eight major championships (over two years).  The following chart illustrates the difference in the rankings of Nicklaus and Woods in major championships over the fifteen years after they each won their first major.  The difference in rankings is presented as the percentage of the highest possible ranking (eight straight major championships).  Nicklaus had a higher ranking in majors over 82% of their overlapping careers.  The exceptions are that Woods’ performance in 2000-2003 was better than Nicklaus’ record in 1965-1968, and again in 2008-2009 compared to Nicklaus in 1973-1974.

In the years following this chart, Nicklaus would go on win four of the next 40 majors he played culminating in the 1986 Masters.  Even in this second half of his career Nicklaus averaged 27.6 points per major championship played.   Tiger’s disappointing performance at the Masters this weekend makes it seem doubtful that he will tie or break Nicklaus’ record of 18 Major championships (Tiger has 14).  Woods has earned 18.6 points, on average, in the eleven major tournaments he has played since 2009.

Woods is one of the greatest golfers of all time and may again become the best player in the world.  When evaluating performances on the biggest stages against the best competition, Jack Nicklaus from 1962 to 1977 was better than Tiger Woods from 1997 to 2012, with few exceptions.

 

 

Where The Jobs Are

Job growth has been concentrated in three sectors: health care and education, professional and business services, and leisure and hospitality sectors.  In the past two years employment in these sectors have grown more than twice as fast as the rest of the economy and accounted for more than 3/4 of job growth.

Employment in the past two years increased by 3.4 million overall, and by:

  • 1.18 million jobs in Professional and Business Services
    • Over 500,000 of these jobs have been in Temporary Help Agencies.
  • 595,000 jobs in Leisure and Hospitality
    • Over 420,000 of these jobs were in Restaurants
  • 806,000 jobs in Health Care and Education
    • Home Health Care Services and Outpatient Care Centers are growing three times faster than the rest of the sector

There is no indication that these trends are about to change.  Over the past three months employment in these sectors accounted for 2/3 of the net new jobs created.  In addition, these sectors account for three out of five private sector job openings.  Job openings in leisure and hospitality have seen the largest increase – up 53% from one year ago.

Traditionally, employment in construction and durable goods manufacturing rebounds the most during economic recoveries.  During this recovery, however, construction employment has not increased in two years.  Moreover, employment in restaurants has increased more in the past two years than employment in all durable goods industries combined.

Real Estate and Small Business

Start-ups and new businesses are extremely important for job creation and employment growth.  The strength of the economic recovery depends on the rate of new business formation and the employment gains from these start-ups.   Real estate is the primary asset for many small businesses and the collapse of residential and commercial property values devastated their balance sheets.  Declining real estate values have also reduced the net worth of entrepreneurs and likely slowed the rate of small business creation.

The latest Federal Reserve’s Flow of Funds Report, which was released last week, indicates that real estate is a substantial component of the assets of non-corporate non-financial businesses.  In 2007, prior to the collapse of real estate property values, the market value of real estate accounted for

  • 69% of the assets of non-corporate businesses
  • 33% of the assets of corporate businesses

Moreover, residential real estate accounted for the majority of the real estate holdings by non-corporate businesses and 41% of all assets of these businesses.

The sharp decline in residential and commercial real estate values during the Great Recession had an enormous impact on the balance sheets of non-corporate businesses.  The plunge in real estate prices accounted for 99.9% of the decline in the value of their assets between 2007 and 2009.  The value of real estate owned by non-corporate businesses has increased since 2009, but for each $8 decline in property values there has been only $3 in gains between 2009 and the end of 2011.  The recession has taken its toll on small businesses; the asset value of all non-corporate businesses is 10% below the pre-recession level, while corporate businesses are worth more than in 2007.

The decline in real estate property values devastated the balance sheets of small businesses and probably reduced the rate of new business formation and job creation.  The latest Federal Reserve data indicates that corporate businesses are worth more than they were prior to the downturn, while non-corporate businesses have declined in value.  Real estate is the primary asset for most small and new businesses, which account for much of new job creation.  Depressed real estate values remain a drag on small businesses.  Small and new businesses will not be an engine of growth until residential and commercial real estate values recover.

%d bloggers like this: