Sunday, November 9, 2008

Patterns of Labor Shedding - Housing and Oil

It pays dividends to look at datasets yourself. Try to pretend you didn't know anything about current events, and see what the data says 'on its own'.

In this current downturn, so far, the economy has shed about 600K construction jobs, from the peak of 7,732K in September, 2006 (straight down since then). If industry employment returned to its pre-bubble, early 2000s level, that's another 200K, or about six months at the current monthly pace. There is nothing magic about that number, but it may be an indication beyond which the markets would start to 'overshoot'. At this time, I don't have a good guess for how big overshoot could be, except a figure of about 535K. It's worth noticing that residential housing employment, arguably the most cyclical component, is within 260K of its 1992 trough (and housing starts aren't much below that cycle low, right now, giving some support that the prior trough is a good enough estimate).

Manufacturing has already lost a lot of jobs in the 2000s, during the Bush administration (3 million on my figures). That raises the question of just how far U.S. manufacturing could dip. Manufacturing has been falling since May of 2006, and cumulative losses already stand at 920 million. The sad truth is, one could make an ad-hoc case from the numbers that up to 2/3 of that is secular decline, not cyclical...

Anyway, to get up to 3 million, we'd have to boot the equivalent of the entire auto industry or something. It's not clear that the current downturn will accelerate any long-term trends in the hollowing-out of American industry. Right now, it doesn't feel like the downdrafts are blowing that way ... although there is that strong dollar, once again.

There is a recent, sharp-looking fall in the services sector (particularly retail). This looks like the oil-spike, to me, but I'm sure there is a flavor of the credit crunch in their and cross-correlations with the housing bust (0.5% of services employment is 580K, about 200K more than we're showing so far...). We've never seen a recession with Leisure & Hospitality employment equal to total manufacturing employment. Last time, L&H was off about 17% peak to trough, over 11 months. If that pattern holds, that's another 145K jobs over the next five months, from current levels.

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