The Importance of Small Business Hiring

The WSJ details the potential good news on the job front:

Private-sector jobs in the U.S. rose by 206,000, according to a national employment report published by payroll giant Automatic Data Processing Inc. and consultancy Macroeconomic Advisers.

Economists surveyed by Dow Jones Newswires expected ADP would report an increase of 130,000. The October data were revised to show a rise of 130,000 versus 110,000 reported earlier.

The chart below shows that the bounce has come almost entirely by small and medium sized businesses (i.e. those with payroll of less than 499 employees). I would note that hiring among companies with payroll of less than 50, saw the highest jump in hiring since November 2006. I personally wonder whether those that can't find jobs are creating their own or if there are opportunities out there that corporations aren't seeing as they have downsized and focused on reducing expenses.

Either way, this is part of a longer term trend in the job market. Corporate payroll now makes up less than 16% of overall payroll, according to ADP, down from almost 18.5% a decade ago. The issue of course is that small and medium size businesses haven't grown their share, but rather corporations have reduced their share through the outsourcing of jobs overseas.

Source: ADP

How's the Job Recovery?

While MF Global and the situation in Europe significantly reduce the importance of any economic release, I thought I would highlight today's ADP employment figure anyhow.

The chart below outlines the change in goods producing, service providing, and total employment figures going back ten years. Note that over this time there have been no jobs added, while the population has grown roughly 10% (i.e. it looks bad, but it's been even worse).

The good news: service providing jobs (the type that make up the majority of jobs these days) are rebounding

The bad news: goods producing jobs (the type that actually produce stuff) are down almost 25% (yes 25%) since 2001

Source: ADP

Finance and Government... Such a Drag (On Jobs)

Businessweek details:

U.S. employers announced the most job cuts in more than two years in September, led by planned reductions at Bank of America Corp. and in the military.

Announced firings jumped 212 percent, the largest increase since January 2009, to 115,730 last month from 37,151 in September 2010, according to Chicago-based Challenger, Gray & Christmas Inc. Cuts in government employment, led by the Army’s five-year troop reduction plan, and at Bank of America accounted for almost 70 percent of the announcements.

While the bulk of firings are not “directly related” to economic weakness, they “could definitely be a sign of more cuts to come,” John A. Challenger, chief executive officer of Challenger, Gray & Christmas, said in a statement. “Bank of America is not the only bank still struggling in the wake of the housing collapse, and the military cutbacks are probably just the tip of the iceberg when it comes to federal spending cuts.”

Quarterly Job Cuts

Job Cuts by Sector

Source: Challenger Gray

Quits / Layoffs

Bloomberg details (the below was pieced together from a broader article):

The quits rate can serve as a measure of workers’ willingness or ability to change jobs. The number of quits (not seasonally adjusted) in July 2011 increased from 12 months earlier for total nonfarm, total private, and government. In the regions, the number of quits rose in the Midwest and West.

The layoffs and discharges level (not seasonally adjusted) declined over the 12 months ending in July for total nonfarm and government. The number of layoffs and discharges was little changed in all four regions over the year.

So, in theory an increase in the number of quits relative to layoffs should reflect an improving economy and an improving economy should be reflected in the equity market. I was surprised by how strong this was reflected in the data (maybe just luck).

If one were to believe in this relationship, then one would notice how equities seem to lead out of recessions, but the ratio would have given investors a heads up that things were not right back as early as late 2006. I'd also note that the ratio has come back since the market bottom, but not nearly as much as the equity markets have.

Source: BLS / Yahoo Finance

Pace of U.S. Recovery Slowing

Growth in the economy appears to be slowing (not that the recovery was all that amazing to begin with).

ISM Manufacturing



ADP Payroll (the "real" figure arrives this Friday)

Source: ADP

Employment Picture: Getting There... VERY Slowly

Bloomberg details:

Job openings in the U.S. fell in November from the highest level in two years, signaling a sustained labor market recovery will take time to develop.

The number of positions waiting to be filled decreased by 80,000 to 3.25 million, the Labor Department said today in Washington. The number of people hired dropped from the prior month and separations climbed.

The drop in job openings was led by education and health- service providers, which saw a 91,000 decrease in openings. Retailers had 37,000 fewer jobs available and state and local government agencies saw a 25,000 decrease. Professional and business services, which include accountants, computer systems experts and temporary-help agencies, had the biggest increases in available employment, followed by manufacturers.

Back to Bloomberg:

Compared with the 15 million Americans who were unemployed in November, today’s figures indicate there were 4.6 people vying for every opening, up from about 1.8 when the recession began in December 2007. The number of jobless fell to 14.5 million last month, pushing the unemployment rate down to 9.4 percent, the lowest since May 2009, the Labor Department reported last week.

Source: BLS

Tax Cuts and the Impact (i.e. Cost) per Job

American Progress details:

Our analysis of the framework tax agreement that President Barack Obama announced yesterday, including additional tax cuts and an extension of unemployment insurance, finds that 2.2 million jobs will be the end result. In this time of economic distress, millions of new jobs are, of course, very welcome. It is, however, unfortunate that these jobs have to come from an agreement that is a balance between large, unneeded, bonus tax breaks for the wealthiest Americans and the needed continuation of unemployment benefits, middle-class tax relief, and additional help for the economy for the rest of us.

Based on their analysis the "good" components are the unemployment benefits extension, payroll tax cuts, and refundable low income credits forecasted to cost $150k or less per job added; while the bonus tax credit, extension of business tax credits that were set to expire, and bonus expensing provisions (100% for 1 year, 50% for year 2) cost between $400k and $700k per job added.



Source: CBO / Mark Zandi

Companies Increasingly Looking to Hire

Source: BLS

ADP Points to Limited / No Employment Recovery

Marketwatch details:

U.S. private-sector employment fell 10,000 in August, according to the ADP employment report released Wednesday. "The decline in private employment in August confirms a pause in the recovery already evident in other economic data,"said Joel Prakken, chairman of Macroeconomic Advisers, which produces the report from anonymous payroll data supplied by ADP, in a statement. On Friday, the government is scheduled to report nonfarm payrolls for August, and economists polled by MarketWatch are looking for an overall decline of 105,000, including an expected increase of 25,000 jobs in the private sector.

Source: ADP

Job Postings on the Up and Up

Indeed (via Infectious Greed):

Our July Industry Employment Trends show year-over-year job posting growth in 1 out of 12 industries. Transportation and Manufacturing, often viewed as early indicators of economic improvement, enjoyed the strongest job posting gains.

Transportation has been a top performer in recent months, and became the first industry to show greater than 100% year-over-year job posting growth. The most active markets for this industry, as measured by job seeker clicks, were Houston, Atlanta, and New York.

The number of Manufacturing job postings exceeded 100,000 for the first time since we launched Industry Employment Trends in February 2009. Jobs for Maintenance Technicians and Production Supervisors received the highest number of job seeker clicks.

Healthcare job postings declined 2% year-over-year, but the industry continues to have the most jobs available.

Source: Indeed

Unemployed to Job Openings Remains Elevated

Calculated Risk provides some additional details:

According to the JOLTS report, there were 4.96 million hires in February (SA), and 3.957 million total separations, or 4 thousand net jobs gained. The comparable CES report showed a loss of 14 thousand jobs in February (after revision).

Layoffs and discharges have declined sharply from early 2009 - and that is a good sign.

However, hiring has not picked up - and even though total separations were at a series low, there were few jobs added in February (according to JOLTS). This low turnover rate is another indicator of a weak labor market.

Source: BLS

EconomPic Turns Two / Jake Has a Favor to Ask

I was debating whether to first thank you all for the support that has allowed EconomPic to "blossom" over the past two years and then ask a favor OR to first ask the favor and then thank you all. At the risk of sounding insincere in my appreciation to all of you readers, I will lead with the favor… (hey, I think this is the first favor I've asked in these two years so give me a break).


The favor… Anyone Know of a Job for Jake in the San Francisco Area?

Maybe not the best timing considering unemployment is near a 30 year high, but I have reached the point where I am now ready to begin actively looking for a new opportunity. However, I am in the awkward position of not wanting to reveal my real identity to 5000+ potential viewers (I actually really like my current job… definitely more so than being unemployed which is a potential result if my current employer were to discover that I was actively looking to leave).

Thus, the question… how do I attempt to lever my readership (i.e. those that understand my point of view, share a strong interest in the field of which I am pursuing a new opportunity) while not risking my current employment?

Solution (for now) = “Jake”.

I apologize if this bursts the bubble, but my name is not Jake (shocker!). In fact it does not even start with a J (or does it?). That said, let me provide true (somewhat murky) facts about “Jake” (if referring to a fake name, it is not third person… right?).

Jake:

• Works in the field of investment management
• Graduated from an Ivy League Business School ~ 3 years ago and has an undergrad degree from a large “state school” (results in my rare blend of "sophistication" and beer drinking skills)
• Since business school has worked for a well-known firm and received a nice promotion ~ one year ago
• Lives in New York City (and has for most of the last 10 years)
• Is ONLY looking for an opportunity in the California Bay Area (this is actually driving the decision to look… again, the current job is great, just not in the Bay Area)
• Is hoping to move to a position even more aligned with his strengths and interests; currently works closely with a number of very large institutional clients on the relationship / marketing side of the business, but is looking for a role that is more 'data / research / investment decision making' driven
• That said, he is looking at all possibilities including roles and employers (hedge funds, mutual funds, consultants, endowments, foundations, etc...)
• While money is an important factor to a point (would like to pay the bills), the much larger factor will be whether it is a role that makes him excited to go to work on a Monday (or Saturday and Sunday if need be)
• Is not scared to travel (I am actually becoming a professional at it), but would prefer to limit this to 5 days or less / month
• Has a passion for both economics and financial markets (see econompicdata.com for more details)
• Loves to look at broad swaths of data and make it more understandable (see econompicdata.com for more details)
• Can be considered a risk taker when he has strong views
• Has a mind that can race 1000 miles an hour, but is known to sit down and read long (supposedly boring) documents when he feels he can learn more about something
• Enjoys coming up with broad ideas when his mind does race and likes to test those ideas with market data (see econompicdata.com for more details)

FAVOR: So... does anyone out there know someone in the Bay Area in the field of investment management or even better, know of an opportunity that I may be qualified for? If so, PLEASE drop me an email at econompicdata@gmail.com or direct my email address to your contact and I would be happy to share more about my background.


Now... To the Sincere Appreciation

Back on March 4th, 2008 EconomPic came to be with this sorry looking chart of CPI. The point of the blog was simply to store charts that I had been creating to get a better sense of what made up headline economic figures that were reported (lazily at best, intentionally misleading at worst) by traditional media outlets.

Here and there, I would send Barry over at The Big Picture (I used to correspond with Barry from my business school days) some of these charts, which on occasion he would post and to my amazement I would get a few hundred hits from his site.

I didn't post a single word (literally, I didn’t even source my initial posts as I didn’t think anyone was reading them) on EconomPic until June 11th, 2008 when I wrote a post titled "Why Not Deflation?". I honestly didn't expect a single person to read the post, but I wanted to document this belief so I could prove to a friend or two that I had called it right when the economy slowed. Likely due to my own click through to Naked Capitalism (I linked to a post at Naked Capitalism, which likely made Yves aware that my blog even existed), to my utter amazement, it was made one of her links of the day.

In my now 1600+ posts, I've learned more about the economy and world of finance than I thought possible (yet I still know little). This is only possible by the great reader base and other great bloggers I read daily that have made traditional media seem flat and out of touch. The thought of giving back to this community provides the motivation to keep making 10-20 posts per week. The fact that EconomPic has ~1800 RSS subscribers through Google Reader alone is mind boggling.

So thank you to everyone who has read or contributed, which has enabled EconomPic to be something more than a storage space for these tacky charts.

Can't Get a Job? Here's Why...

BLS (hat tip Calculated Risk):

There were 2.5 million job openings on the last business day of October 2009, the U.S. Bureau of Labor Statistics reported today. The job openings rate was unchanged over the month at 1.9 percent. The openings rate has held relatively steady since March 2009. The hires rate (3.0 percent) and the separations rate (3.2 percent) were essentially unchanged and remained low.

Calculated Risk with some thoughts on the release:

I'm not sure if openings are predictive of future hires (the data set is limited), but openings near a series low can't be a positive. Separations have declined sharply, with fewer quits and layoffs, but hiring has not picked up. And quits at a series low suggests those that are employed were holding on to their current jobs in October.

And why should they quit? The level of openings as compared to the number of unemployed is at a series high (data only goes back to 2000) with once again more than 6 unemployed individuals per job opening.



Source: BLS

Job Destruction isn't the Problem

Andy Harless (hat tip Credit Writedowns) with details of the latest BLS Employment Dynamics Summary:

Overall (at least during the first four quarters of the recession, up through the end of 2008, for which we have the relevant data), there weren’t an unusually large number of total jobs being destroyed.

But...but...but...haven’t we been hearing about large numbers of job losses month after month since the recession began? Sort of. We’ve been hearing about large numbers of net job losses. That is, the number of jobs that have been lost has been a lot more than the number that have been created. And a lot of job losers have ended up collecting unemployment insurance for a long time, sending the figures for continuing claims up to records, instead of getting new jobs. But the gross number of jobs being destroyed has not been unusually large. In fact, relative to the overall level of employment, job destruction was happening at a faster rate during the boom of the late 1990s than it was during the last quarter of 2008.

As can be seen below, job contraction and closings are both at levels seen throughout the 1990's, but openings and expansion are both substantially below levels of that same time period.



Back to Andy with the tidy conclusion:

If you lost a job in 1999, you weren’t actually all that atypical, but it wasn’t a big problem, because typically, you could find a new job fairly easily. If you lost a job in 2008, you were (typically) out of luck.

Source: BLS

Australia's Frozen Job Market

While Australia's economy has done relatively well during the crisis due to their commodity exports to China, their job market is apparently as dreadful as ours. The Age details an index that I had not been previously aware of:

Skilled vacancies dropped 7 per cent in May, according to the latest Government data, easing the pace in declines for the nation's jobs outlook.

The slump follows a 8.9 per cent fall in the April reading of the index, compiled by the Department of Education, Employment and Workplace Relations. It marks the 18th consecutive month of falls, as the nation struggles with weak demand for workers triggered by the recession after an earlier shortage of skilled workers put a lid on hiring at the height of the economic boom.

The DEWR vacancies index, compiled from job ads in major metropolitan newspapers across the country, is a leading indicator of the labour market.

"The monthly fall in skilled vacancies was widespread, with decreases evident across most occupations," DEWR said, with medical and science technical officers down by 20 per cent.

Taking a look at this job index by sector and sub-sector (in year over year terms) we see that no area has truly been safe (with the interesting exception being marketing and advertising).



Source: Workplace.Gov.AU

A Feel Bad Rainbow: Job Cuts YTD

CNN reports:

The job market is off to a terrible start this year, with companies announcing more than 80,000 job losses so far, in one of the most painful symptoms of the ongoing recession.

Circuit City Inc. is the biggest culprit of 2009. The bankrupt retailer said on Friday that it is shutting down because of dried-up consumer spending and liquidating its 567 U.S. stores, dooming some 30,000 jobs.

Stimulus Projected to Save 3.675mm Jobs... 3mm Too Little?

Christina Romer and Jared Bernstein have released projected jobs created / saved due to the Obama stimulus plan... a cool 3.675 million. The charts below show where these jobs are projected to come, by sector and by method (i.e. direct or indirect).

The most jobs, not surprisingly, are in construction. Other top sectors include retail (from stimulating consumption), leisure (gotta do something when laid off right?), and manufacturing.

Table 2:



How? Well, the majority are expected to be indirectly created not from the plan itself, but by the recycling of dollars / demand created from those created directly. Projections are for state relief (i.e. fund projects that would otherwise be cut) to save / create the most, followed by the protection of those jobs vulnerable in the downturn, and tax cuts.

Table 5:



The question is obvious... is this enough? According to Christina Romer and Jared Bernstein's "R/B" own conclusion:

• The recovery plan needs to be large to counter the tremendous job loss that is likely to occur

So is it? Paul Krugman says it clearly is not:

Here’s one way to look at it: R/B show the effects of the plan rapidly fading out during 2011. Yet at the end of 2011 the unemployment rate is still 6.3%. Meanwhile, the CBO estimates the natural rate, aka “full employment,” at just 4.8%. Why does the plan go away with the job undone?

In other words, R/B and Paul all conclude that the plan needs to be large enough to offset the jobs lost, but R/B themselves project that it won't. By their own analysis, employment is expected to rise to 9% with no stimulus. Comparing employment figures from December 2007 (unemployment at that time was 4.8%, which equals the CBO "full employment" level) with the projected employment figures for 2010 using R/B's 9% unemployment figure, I project the those unemployed to rise 6.7mm from December 2007. This is 3mm higher than the number of jobs the stimulus plan is projected to create / save (the difference between the loss in employment and gain in unemployment is the population growth) or to be blunt, not enough.

Employment by President

I understand this is not completely due to GB II (the business cycle dominates a lot of this), but...

WSJ:

President George W. Bush entered office in 2001 just as a recession was starting, and is preparing to leave in the middle of a long one. That’s almost 22 months of recession during his 96 months in office.

His job-creation record won’t look much better. The Bush administration created about three million jobs (net) over its eight years, a fraction of the 23 million jobs created under President Bill Clinton’s administration and only slightly better than President George H.W. Bush did in his four years in office.

I've also added a line showing the difference between the jobs growth and population growth. Any negative figure means jobs grew at a slower rate than the population... not a good thing.

Job Creation: Last Two Presidencies

As John writes in the comments:

Economic cycles do not begin and end merely because a president (or prime minister or king or dictator or poobah) takes office. Correlation is not necessarily due to cause.

I agree that this may overstate things, but I do believe the correlation between Bush and job growth is negative and that value has significance.

Source: Colin Peterson