by John Galt
March 10, 2010
One of the obscure corners of the data universe I enjoy exploring just happens to be located on the Bureau of Labor Statistics are known as the Business Employment Dynamics whose purpose is defined as:
Business Employment Dynamics data are quarterly series of gross job gains and gross job losses statistics for the entire economy. These data track changes in employment at the establishment level, and thus provide a picture of the dynamics underlying aggregate net employment growth statistics.
The information here has approximately a two to three quarter lag but when it is updated, it provides a clearer more accurate picture of just what has happened and the trending of the employment picture as the quarterly data is received. In this particular case I have decided to highlight the severity of the problems our economy endured during the teeth of the economic downturn via the available information on their home page through the second quarter of 2009. This will capture the entire recession as defined by many of the political and Federal Reserve economists who reflect a beginning in December 2007 and finishing in June of 2009. Granted, the National Bureau of Economic Research (NBER) has yet to define this economic downturn as over as per their home page:
Last Four Recessions and their Durations
| 12/07 |
- |
? |
|
|
| 3/01 |
- |
11/01 |
|
8 months |
| 7/90 |
- |
3/91 |
|
8 |
| 7/81 |
- |
10/82 |
|
16 |
yet for the purposes of this entry, we shall use the Federal Reserve/BLS term. I have attempted to demonstrate via the graphs with data provided by the BLS to illustrate the impact on the typical small to mid-sized businesses along with a comparison for large employers with 1000 plus employees and the grand total to highlight the devastation to the private sector and how far a true recovery in employment really is.
A quick note and reminder about this graph from the BLS; the NBER has not defined the end of the recession, only the Federal Reserve and BLS thus far along with the politicians of course. The graph above demonstrates that as the recession peaked, just like the 2001 recession, private sector job losses peaked and began to roll over as the recession ended. What is unique about this recession is that the severity of the drop in private sector gross jobs gains is so severe that any one issue or action economically or by the government imposing more burdens could restrict further private sector job expansion, thus leaving the quarterly gross losses at historically high levels and the millions of people on unemployment trapped by a system dependent on government largess.
This graph is the most disturbing one. While everyone seems to think that America will recover as a “service” economy the reality is that not one economic recovery, be it the Panic of 1907, the Depression of 1893, the Depression of 1920, the Great Depression, or recessions since World War II had sustained economic growth without the goods producing sector out pacing job creation within the private sector. There is this theory that the American economy will expand on census workers and burger flippers but without the construction industry and the associated sectors of the economy that supply this industry, then we will see a very short lived inventory replenishment bounce and the GDP will turn south rapidly at the end of this year.
The numbers do not lie, and as you can see we have regressed in the number of construction jobs some FIFTEEN YEARS back to the mid-1990’s level and there is zero indication that this will improve between now and next year. If not until 2030 as per the Moody’s report referenced in a post yesterday. Without construction any recovery will be short lived as Americans will not earn enough to maintain any semblance of the standard of living of the past twenty years much less service the civilian debt levels of the last ten.
The financial services industry has also experienced a lost decade already:
Thus the theory that the financial and service industries will lead this recovery is total fluffernuttery and based on a flawed logic. The earnings power within the American workforce has been greatly depleted and lessened by this recession (Actually a depression but that’s for history to determine) and probably will not recover for at least a decade if at all thanks to the total debt load and future obligations piled on top of the economy. Why the alarm? To maintain profitability and in many cases just to survive, companies in the private sector began cutting employees down to bare bones levels and demanding more productivity from the employees and management to sustain the operations at the reduced levels of economic activity. This quote from the March 4, 2009 Report on Productivity and Costs:
Unit labor costs in nonfarm businesses fell 5.9 percent in the fourth
quarter of 2009, the result of productivity increasing faster than hourly
compensation. Unit labor costs decreased 4.7 percent from the same quarter
a year ago, the largest four-quarter decline since the series began in
1948 (table A). The annual average index of unit labor costs declined 1.7
percent from 2008 to 2009, the largest decline in that series (table D).
sent up a red flag to me that we will see neither an increase in wages to surpass the annualized inflation rate and worse, further taxation and burdens for other necessities such as medical insurance and other benefits shifted from the previously shared relationship between the employer and employee over to the worker. The graph from the same report illustrates the dramatic nature of this decline.
This will create further declines in the cost of labor which will be good for profitability and survival but at what cost for the unemployment picture? Let’s review the small business side of this equation and see what was happening at the “tail end” of the recession in Q2 of 2009, the latest data available from the BDM.
The average small sized business was still laying off people through the second quarter of 2009 and when the data later this year emerges about the third quarter, it will be interesting to see if the decline accelerated.
The same comment as above applies and this is the average sized business which generally will lead the economy out of a recession and into sustainable growth. Let’s take a look at the 1000+ employee data and totals to get some idea as to the drastic contraction we have witnessed in this recession:
There are where the major layoffs and bankruptcies happened with over 2.6 million private sector jobs being eliminated. Thus why the total looks so horrid and the depths of the decline are almost Great Depression era like:
Until we see sustainable growth in the private sector, with the ability to absorb those workers lost in the manufacturing, construction, financial services and information technology arenas with a comparable level of compensation, this recovery will be short lived and somewhat shallow with 8% plus unemployment being the norm with only minor or temporary dips below the “official” U3 9.5% level as government activity ramps up to absorb the excess workers. At this point in time there is no incentive for employers to increase compensation thus the deleveraging process will be somewhat slowed for the consumer and the acceleration of defaults on unsecured and secured loans to consumers will continue.
