not layoffs but lack of new jobs

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Not Layoffs, but Lack of New Jobs
By: Dirk van Dijk, CFA
February 09, 2010 | Comments: 0
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When the Bureau of Labor Statistics puts out its monthly employment report like it did last Friday, the number of jobs gained or lost is the net number between jobs lost and jobs gained. Today, they put out a more detailed picture -- but for December, not January -- in what is known as the Job openings and Labor Turnover Survey (JOLTS).

This is a very interesting survey, but unfortunately it only goes back to 2000, so it is of limited usefulness in comparing this recession to other historical downturns. As the graph below (from http://www.calculatedriskblog.com/) shows, the biggest problem with the labor market is the lack of new jobs, not a particularly high rate of job losses.

People leave their jobs for a couple of reasons. They can quit, but they usually only do that when they already have another job lined up. Or they can be laid off or retire. The former are shown in the light blue bars, the latter in the red bars. Together they make up the number of jobs lost in the economy.

The purple line is the number of people hired each month. When the purple line is below the light blue bar (stacked on top of the red bar) it means that the economy is, on-balance, losing jobs (roughly corresponding to the establishment survey numbers from the monthly employment reports). The yellow line is the number of job openings. The numbers are snapshots at the end of each month.

In a dynamic economy, there will always be some jobs being lost, even in the most exuberant of economic booms, and there will always be people finding new jobs, even in the most brutal of economic downturns. It is the difference between them that matters.

Our Recent Job-Loss Environment

Without a question, 2009 was one of the more brutal years in the labor market in a very long time. However, in calendar 2009, hires totaled 49.4 million. That’s right -- there were 49.4 million people who started a new job in 2009. The problem was that separation totaled 53.6 million, yielding a net employment loss of 4.2 million.

The 49.4 million figure was way below normal. What is particularly noteworthy in the graph is that the total number of jobs being lost is just about at its lowest level on record, although the record is frustratingly short. Even in the worst days of the downturn a year ago, when the economy was hemorrhaging net jobs at the staggering pace of three quarters of a million per month, the total number of jobs actually being lost was below where it was for most of 2005, 2006 and 2007.

There was, however, a huge change in the make-up of jobs lost. With the overall economy imploding, the number of people willing to tell their boss to “take this job and shove it” fell dramatically, while the number of involuntary separations soared.

The number of layoffs has since receded. It is still somewhat elevated relative to the overall short history of the survey, but it is well off the peak. The big drop in the layoff rate came in the spring, shortly after the ARRA came into effect. Thus it looks like the Act has been relatively more successful at saving jobs than at creating them.

Declines Began Pre-Recession

The core of the problem was the number of new hires fell even faster. The decline in the number of new jobs being created started in the middle of 2006, well before the recession formally started in December of 2007. The number of layoffs bounced around, but the number of people quitting their jobs fell, allowing for net job creation to continue even with fewer people getting hired.

The number of people willing to quit their jobs plunged in the first half of 2009. The new hire rate actually bottomed out in May. Both it and the number of job openings seem to be in a broad U-shaped valley, no longer declining but not showing any signs of rising.

Relative to December of 2008, there were 9.6% fewer hires in December 2009, with a seasonally adjusted rate of 4.073 million, down from 4.508 million. Private hires were down 9.4% year over year.

Total separations were down 14.5%. However, they were running at a 4.238 million rate, which is still substantially above the new hire rate. Private job losses were down even more sharply, falling 15.6% year over year. Not surprisingly, the number of people voluntarily quitting their jobs is also down, off, 16.6%.

The report does not directly give the number of layoffs, but it does give the number of quits, so subtracting quits from total separations gives us a rough idea of the total number of layoffs (but also includes retirements). The number of apparent layoffs is down to 2.474 million in December 2009, from 2.844 million a year ago, a decline of 13.0%. The number of job openings, though, is down even more, off 22.5% to 2.497 million from 3.224 million a year ago.

Unemployment Ratio Way Up

According to the household survey in the employment report, the number of unemployed was 15.267 million in December. Thus there are now 6.1 unemployed people for each job opening. That is up from 3.7 job seekers per job a year ago.

Regionally, the Northeast seems to have fared the best. The number of new hires in the Northeast was actually 3.0% higher in December than a year ago. It, however, is the smallest of the four census regions. The West has seen the biggest decline in the number of new hires, off 14.2% from a year ago, followed by the Midwest with a 10.8% decline. The South, the biggest of the four regions, saw a 8.6% decline.

However the Northeast also showed the smallest decline in the total number of separations, down just 4.5%. The South, on the other hand, saw a 17.7% decline, while the West was down 16.7% and the Midwest was down 13.6%.

Job Growth Budding - But Where?

The table below shows the number of job openings, hires are total separations broken down by industry. While not a huge industry to start with, the Arts and Entertainment field has seen a particularly steep drop in the number of job openings relative to a year ago, falling 45.0%. Meanwhile the number of separations has barely fallen at all, down just 1.9%.

In retail (these are seasonally adjusted numbers so it is not just Christmas), the number of job openings rose sharply in December from November, up 24.9%, but they remain 27.0% below a year ago. While retail jobs tend to be at the low end of the pay spectrum, firms like Wal-Mart (WMT - Snapshot Report) and Target (TGT - Analyst Report) are among the biggest employers in the country (Wal-Mart is the biggest).

The pick-up in December could be just because of bad seasonal adjustments, but if it is real, it is a good sign about the total number of jobs in the economy. However, it is not that great an omen about the quality of the jobs being created.

In other words, what we are seeing is a big drop in the mobility of the job market. One potential reason for this could be the housing market. If people cannot sell their house because they are underwater on their mortgage, they are less likely to move to take a new job.

However, the short length of the time series makes any conclusions of that sort very tentative. That said, it does seem clear that the real problem is the lack of new job creation, not the rate of job losses.





The government line is both Federal as well as state and local, so to get the Federal Government numbers subtract the state and local line from the total government line.

Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market beating Zacks Strategic Investor service.