Job Growth Hits the Wall as Financial Turmoil Hits the Job Market
We were afraid this shoe might drop, and drop it did last month, with a thud, right in the middle of the US job market, which lost 4,000 jobs, the first such loss in four years.
A central question surrounding today’s jobs report was whether it would provide clear evidence of a contagion effect from financial markets. Are the bursting housing bubble, the credit crunch, and recent financial market turmoil having a negative impact on the job market?The answer is an unequivocal “yes.” The fingerprints of these problems are all over today’s jobs report. Several factors point to the beginning of a new and troublesome trend in the job market: negative revisions of earlier months’ data, widespread losses and slowdowns across industries, and weak labor force growth.
True, the unemployment rate held steady at a relatively low 4.6%. But that was entirely due to a large monthly fall off—down 340,000—in the labor force (those who leave the labor force are not counted among the unemployed). In other words, the unemployment rate was unchanged due to fewer job seekers, not more jobs. Had the labor force leavers instead been unemployed, the rate would have jumped to 4.85%.
Moreover, the credit contagion and housing bust are unlikely to disappear soon. To the contrary, at this point, we need to worry about a vicious cycle wherein slower job growth eventually leads to slower wage and income growth, less consumer demand, reinforcing further weakness in hiring.
Thus, now is the time to start exploring ways to regenerate growth. The Fed is likely to cut interest rates at their meeting later this month, and Congress might begin assembling a jobs package to keep a slowing economy from grinding into recession. It would also make sense to beef up our Unemployment Insurance program, making sure it’s ready for a bunch of new customers.
The deteriorating job market is a stark reminder that we need economic policy based on productive investment and the creation of good jobs. The other kind of economic policy—the type that relies on asset bubbles in the housing or stock market—has demonstrably failed.
It seems that we have more than enough infrastructure repair and rebuilding to do to soak up many of the unemployed construction workers, and that would, of course, spread throughout the labor market. A Federal/State/Private infrastructure bond fund might be a very attractive investment. If only we weren't spending the money killing people and occupying countries, maybe we could actually do it.
September 7, 2007 10:03 AM | Reply | Permalink
You mean "if only we weren't borrowing money and spending it killing people..."
We not only have nothing to spend currently but won't for the foreseeable future as revenues go to debt servicing.
The problem is running a war on the credit card. The best way to turn Republicans against the war is to tax them to pay for it. This is such a no-brainer, I can't believe Congress has failed to act on it.
September 7, 2007 10:23 AM | Reply | Permalink
I don't know if it is a central question, but it certainly is a question. What part of the drop is not to be explained as contagion by the collapse of some financial sectors but instead as direct impact from layoffs in that sector. As an example the New York Times is running with
More Layoffs in Mortgage Industry this morning.
MSNBC has this from August 22 Mortgage industry job cuts surpass 40,000
Companies stop 'on a dime'; 25,000 positions eliminated so far this month
It is notable that the first visible victims of sub-prime meltdown were the lenders, many of whom simply went out of business overnight starting last spring. That is the biggest damage may be happening right at the core of the problem.
September 7, 2007 10:47 AM | Reply | Permalink
I thought more surprising than the negative payroll number was the fact that not one Wall Street economist called it. The spread on the Bloomberg survey was 40-140k, and unusually, in my experience, there wasn't a single maverick who got near the unexpected figure. Not even after the hammering Wall Street has taken through August.
The other thing that is surprising me now is the fact that these same folks believe a rate cut later this month is a done deal. There's no consideration that Bernanke might want to establish his inflation-fighting credentials, and may not be about to cut the economy some slack, not quite yet anyway. Interested to hear what you think - is the Fed going to immediately start prescribing the usual medicine?
September 7, 2007 11:21 AM | Reply | Permalink
Are the bursting housing bubble, the credit crunch, and recent financial market turmoil having a negative impact on the job market?
The answer is an unequivocal “yes.” The fingerprints of these problems are all over today’s jobs report.
Unequivocally, "maybe."
August 2005
Total nonfarm payroll employment: 134.0 million
Civilian labor force: 149.8 million
Labor force participation rate: 66.2%
Discouraged workers: 384,000
Employment-population ratio: 62.9%
Total employment: 142.4 million
August 2006
Total nonfarm payroll employment: 135.5 million.
Civilian labor force: 151.7 million
Labor force participation rate: 66.2%
Discouraged workers: 448,000
Employment-population ratio: 63.1%
Total-employment: 144.6 million
August 2007
Total nonfarm payroll employment: 138.0 million
Civilian labor force: 152.9 million
Labor force participation rate: 65.8%***
Discouraged workers: 392,000
Employment-population ratio: 62.8%
Total employment: 145.8 million
*** BLS: "[Labor force participation] declines were largely due to a drop in labor force participation among teenagers; their
participation rate fell to 39.7 percent (see also teenagers employed: 16.1% Aug/2007; 16.2% Aug/2006; 16.5% Aug/2005).
September 7, 2007 11:56 AM | Reply | Permalink
Bruce,
almost none of the job loss can be explained by the latest round of layoffs in the mortgage sector. Most of these first took effect mid-August or later. The survey asked for the number of people who were on the payroll for the period including the 12th day of the month. While layoffs in the mortgage industry certainly began before August, the latest round of big layoffs will first show up in the September data.
September 7, 2007 12:49 PM | Reply | Permalink
Perhaps we could design & build a nuclear reactor that used 99.5% of the uranium fuel source to make electricity to power our new electric cars, trains, trucks & busses.
I think that would help to reduce greenhouse gas emissions.
The Integral Fast Reactor.
http://en.wikipedia.org/wiki/Integral_fast_reactor
"The press interpreted Bush's commitment to further study on climate change as a commitment to do nothing at all. But Bush had a climate change agenda: safe and clean nuclear power. Nuclear power emits no greenhouse gases at all, and yet the US had not brought a new nuclear power plant on-line in nearly 20 years. As the capacity of America's existing nuclear plants maxed out, electrical utilities burned more and more coal, the dirtiest fuel of them all."
Source: The Right Man, by David Frum, p. 71-73
It is just a matter of getting everyone to agree to revive a research program that was ash-canned thirteen years ago.
http://www.pbs.org/wgbh/pages/frontline/shows/reaction/interviews/till.html
By the way, our present day nuclear reactors
produce a radioactive waste product that
remains toxic for TEN THOUSAND YEARS...
The Integral Fast Reactor would produce a
small amount of waste (1.5% of the reactor
fuel) that would remain a danger to humans
for about 200 years.
I would call that progress.
Maybe if we could use this 1994 technology to cut the life cycle of our nuclear toxic waste from 10,000 years to 200 years & stop emitting greenhouse gasses from our power plants & cars, we could save our ice caps, coastal land, fresh water lakes, forests and other pleasant vacation destinations.
September 7, 2007 1:08 PM | Reply | Permalink
That's fair, although I think I'm on very solid ground. Demand for labor--job creation--is very much a function of overall economic growth.
The bursting of the housing bubble, the inventory overhang, the ensuing credit freeze, all have contributed to considerably slower growth. In fact, avg. GDP growth for the past five quarters is 2%, well-below what it ought to be, and housing explains much of that. And most of us fear that we could be longing for 2% in coming quarters...(ie, it's gonna get worse before it gets better).
Before today, the question was: why isn't this showing up in the job market. That's been answered.
RE the BLS comment on participation, read my report (linked in the piece). Big reversal of adult males in the labor force--though it could be a monthly blip.
September 7, 2007 1:09 PM | Reply | Permalink
. . . we need economic policy based on productive investment and the creation of good jobs. Jared Bernstein
--I will do such things,--
What they are, yet I know not: but they shall be
The terrors of the earth.
September 7, 2007 5:42 PM | Reply | Permalink
Does anyone believe a country can be run like the United States has been over the past six years and continue to prosper? There will be a lot of pain to go around before this is over, and lowering interest rates on the sinking US dollar is not going to work this time around.
September 7, 2007 7:18 PM | Reply | Permalink
Friday, November 18, 2005
Ameriquest parent cuts jobs
May 3, 2007:Subprime mortgage lender New Century to lay off 2,000 workers as unit goes unsold
May 7, 2007; LendingTree lays off 440
Mortgage maker becomes latest to cut staff, with about 147 jobs eliminated in Irvine office.
These are not insignificant numbers, and I could multiply examples. During my brief stint in the mortgage industry we saw many companies slamming the door and laying off their entire staff. This process did not begin in August though certainly it seems to be peaking. The question remains as to whether we are looking at relatively local infection (financial sub-sector meltdown) or epidemic (recession).
September 8, 2007 7:38 AM | Reply | Permalink
It would appear that there is already employment contraction in the financial services sector. This seems to be true in Europe as well as the US. Many of these people have been earning relatively high salaries and some exceptionally high.
They have had the purchasing power to cause a run up in luxury or near-luxury items. When a junior lawyer starts at a Wall Street firm for a salary of $100K+ the demand for things like convenient housing goes up. The result has been that in Manhattan, for example, previously middle class housing has been turned into up scale housing The only ones left are the poor who live in tenements and public housing and the wealthy. There is essentially no middle class housing anymore. I'm sure the situation is similar elsewhere.
What will be the result when these people can no longer afford their present lifestyle? Most people have been focused on the sub-prime and housing flipper markets, but the impact of the well off has not been examined.
As for Jared's aim of restarting a high growth rate as a solution to society's problems I disagree. It seems that all economists, whether left or right, promote growth as the solution to whatever ails us. They only differ on how best to achieve this growth.
It is growth that is the cause of our problems, not the solution. Excessive growth has led to excessive consumption which has led to resource depletion, land misuse, runaway pollution and a host of other ills.
Let's have some suggestions on how to provide a decent standard of living for everyone without consuming at an unsustainable rate. This implies either abandoning capitalism/consumerism or, at least, restructuring it. Apparently modern economists are not up to the task. The variations in policy recommendations are all those of degree - more/less regulation or more/less taxation, etc.
Let's have some bold new ideas. This can't wait.
--- Policies not Politics
Daily Landscape
September 8, 2007 10:20 AM | Reply | Permalink
Re: The question remains as to whether we are looking at relatively local infection (financial sub-sector meltdown) or epidemic (recession).
My bet is: we will see a recession, but not until 2010 or 2011 when it will (alas!) be blamed on a Democratic president. These things take several years to work through the economy. Remember the stock market crash of 1987 and the S&L collapse? That didn't produce a recession until 1991. The most likely cousre of events is that the Fed will pour money into the economy, keeping everything afloat, until inflation grows too big to ignore. At that point the brakes will be slammed on, resulting in a general downturn across the country.
September 8, 2007 2:17 PM | Reply | Permalink
$100K+ starting salary? Damn pikers.
$160K at Alberto Gonzalez' old shop -- and all you need's a big, flashy belt buckle and a pair of Tony Lamases.
September 8, 2007 5:59 PM | Reply | Permalink
I'm with you re sustainable consumption. No one's talking excessive growth--in fact, we're worried about a recession...contracting GDP, rising unemployment, stagnant or falling incomes. We can argue about what's a sustainable growth level, but surely it's above zero!
Your comment does remind me, though, of a chapter from a book I'm just now putting the finishing touches on. It's called "Crunch: If the economy's doing so well, why do I feel so squeezed?" In much of the book, I answer people's questions about economic issues, and one question reads: Economics seems to always assume that more is better than less: more money, more consumption, more investment, more stuff, more, more, more! Is economics thus incompatible with conservation and environmentalism?
I'll post my answer on the front page soon.
September 8, 2007 9:05 PM | Reply | Permalink
All these nice figures.
I'm just wondering how all the illegals get counted in there. They are not recognized as part of the labor force but then we have a known number of employed, a known labor force, and a known number of discouraged workers. With the illegals, some proportion is underground and some in the recognized workforce -- fake SS#s, etc.
I really have some doubts about the true number of "discouraged" workers remaining near constant. A "non-working" number would show far more movement and be more revealing. If one knows the number or workers entering and leaving the workforce each month, or annually, plus legal immigrants, and given that many are delaying retirement or taking jobs to supplement retirement, and that many are underemployed, it shouldn't be too hard but much more work to figure out a new measure to show if the economy is trully expanding or contracting in terms of employment.
Illustration with the figures supplied by sinsneer, 2005 to 2006 the "civilian labor force" rose 1.9 million, 2006 to 2007 only by 1.2 million. Does this match demographics? People going to college full-time? "Retireds" staying working? Did it ever reflect the 12 million illegal workers? Are they in the numbers at all?
Shit. It's like dealing with metrics out of Iraq.
Unemployment %age, like the CPI, is one that has little integrity. Show me.
Oh, and little surprise that economists are any different to the general crowd. When everyone is on the one bus it's probably the wrong one. But, yeah, there should have been one contrarian. He just missed the busses completely this time.
Or it could be the economist who was wrong the last 20 times but right this time. Some other people might remember Greenspan's ability to predict the Fed's rate changes before he became chairman. Somehow everyone continued to listen.
September 8, 2007 11:02 PM | Reply | Permalink
I hope you have (or will have by the time the book is out) looked at the work of the first generation of "ecological" economists like Herman Daly and Robert Costanza.
Daly, especially, deals with issue of qualitative growth compared to quantitative growth, that is improving products without using more resources.
The example I like to use is that of recorded music. The early 78's required a huge stack of disks to play for an hour The LP reduced this a single disk. This was further reduced by the CD and now people store hundreds of hours on a chip the size of a fingernail.
But this is still focusing on material possessions. There needs to be a serious discussion of the "meaning of life". In many pre-industrial societies activities outside of earning a living were not very taxing on the environment. There was more emphasis on communal activities like song, dance, story telling, gossiping and ceremonies. I'm not suggesting that we revive dancing around the Maypole, but people like to connect with others and this has gotten short shrift in modern society. I suppose the interest in multi-player games and sites like Facebook are an attempt to compensate for the isolation of modern life.
I don't think some serious study by sociologists, psychologists and others who deal with the human condition would be out of place. It may sound a bit too much like central-planning to try to foster activities which can replace personal consumerism, but we already do this in an uncoordinated fashion. So why not have a bit of investigation to help with policy planning? When a sports stadium is built with public funds we see an example of such interaction, but it is done in an ad hoc fashion. We can do better with some more data on what works and what doesn't.
--- Policies not Politics
Daily Landscape
September 9, 2007 7:47 AM | Reply | Permalink
Legal Job Growth has hit the wall but the illegal underground employment market is growing exponentially.
Even non profits now require their organizers to be bi-lingual.
The AFL/CIO just initiated a lawsuit wherein they represent employERs. They are litigating to unburden corporations of the requirement to hire legal immigrants and citizens. They seek to declare unconstitutional the requirement of a valid social security card after 90 days of employment. The AFL/CIO tells us they are doing it to protect the jobs of citizens because they hope we are as stupid as they think we are. The National Immigrant Association joins them in the lawsuit. The ACLU is their law firm.
It seems the corporations have bought the unions just as the Saudis are buying our media.
Tonight I will listen to the Democrats debate in Spanish. Those without employment listen in stunned silence.
Who organizes working class citizens in this country ?
This is how so called progressive policies (open borders) feed the rise of fascism among those citizens they have abandoned for fresher revenue.
Working class citizens have to demand that our concern for our fellow workers in less developed countries be expressed through protection in our import/export treaties. We have to demand that Mexico, the 10th richest country in the world, institute reform. The US can do this by supporting, with foreign aid, those organizing for human rights in Mexico.
Working class citizens are going to have to organize new associations to protect our jobs, wages and benefits from both outsourcing and the importing of corporate slaves.
We working class citizens seem to have been abandoned by the unions, democratic politicians and our non-profit associations including the tax exempt churches.
September 9, 2007 5:37 PM | Reply | Permalink
War Tax! Yes!
To be calculated by that sectors participation in the armed forces. The higher percentage of people that put their asses on the line, the less that sector pays.
Watch out upper 5%, you'll get hosed.
As you deserve to be.
CSPAN junkies visit http://spannerbackup.ipbhost.com
September 10, 2007 9:05 AM | Reply | Permalink
Yes, we would be a lot better off if tax rates had remained at least at mid90's levels and we were not borrowing so much and spending it on a war. But even so, I'll bet the Chinese and other lenders would be happy to invest in US infrastructure to support all the American businesses they will be investing in. They know it would be a much better investment than blowing up oil rich countries. Infrastructure projects eventually enable much more productivity and are less subject to recession. Regardless of current business conditions, bridges will be crossed, water will be needed, electricity will be used. And even conservatives understand the need for good transportation and communication systems.
September 10, 2007 2:19 PM | Reply | Permalink