Posts filed under “Wages & Income”
Its tine for everyone’s favorite monthly data point, Non-Farm Payrolls.
For those of you who are relatively new to the site, here is a brief description of how our analysis has evolved over time.
• Weak Jobs Recovery: Following the 2001 Recession, the economic recovery, from a jobs perspective, was rather weak. Indeed, from 2002-07, we had the weakest employment recovery of any post-recession period since World War 2. This data point — widely ignored on Wall Street and MSM — was a warning sign that the recovery was abnormal. It is what sent us looking for what was driving the economy — and the answer was borrowed money.
• Survey Data: There are two employment surveys — Establishment and Household. Establishment works of employment tax data; Household is literally a Q&A survey. They sometimes vary dramatically, but when you control so they measure the same thing, they come pretty close to each other (most of the time).
• Birth Death Adjustment: A major modification to the NFP measure is the Birth Death adjustment. Changes to the BD were proposed in 2001, and implemented a few years later. This attempts to capture early improvements in employment at the start of a recovery was the goal. The trade off is it wildly overstates strength at the end of a cycle. For example, in 2007, approximately 75% of reported new jobs were due to this adjusatment. In 2008, the BD adjustment inexplicably showed lots of job creation in construction and finance.
• Measuring Unemployment: The main measure of Unemployment is the widely reported U3 Unemployment Rate — but my analysis of U3 has been that it significantly understates unemployment. Fortunately, a more complete measure of labor under-utilization is available – the U6 measure. They seem to run parallel, but U6 captures a lot more of the unemployed and under-employed workers than U3 does.
• Leading vs Lagging Indicators: Lastly, economists will tell you that Employment is a lagging indicator, meaning that it lags the economic cycle, getting worse even after the economy begins to improve. And that is mostly true. However, since we are investors by trade, we want o identifty aspects of Employment data that have the qualities of a leading indicator — i.e., they improve before the economy does. There are at least 2 worth paying attention to: Temporary Help, and Hours Worked. Both aspects improve or worsen prior to the a recovery or recession occurring.
Note that there was a lot of pushback against these ideas when they were first discussed here; They have now more or less been recognized if not endorsed by many astute observers . . .
Employment Situation report out a 8:30 today; Bloomberg consensus is 365,000 jobs lost; Barrons Consensus is 350k witha range of -435,000 to -225,000.
I am especially pleased to introduce today’s Think Tank guest, Economist David Rosenberg of Canada’s Gluskin Sheff. For most of you, however, David needs no introduction: A 20 year veteran of the Street, David most recently was Merrill Lynch’s chief North American Economist, where he correctly warned about the Housing and Credit Collapse and Recession in advance.
With Non-Farm Payroll scheduled to be released tomorrow, the timing is perfect to hear some thoughts from David about Employment . . .
A survey conducted by YouGov for the Economist magazine found that 5% of respondents had taken a furlough this year and 15% had accepted a pay cut (see The Recession and Pay: The Quiet Americans on page 33 of this week’s edition).
As wages deflate, workers are looking for ways to supplement their shrinking income base, for example, by moonlighting. Indeed, a poll undertaken by CareerBuilder.com and cited in the USA Today found that one in every ten Americans took on an extra job over the last year; another one in five said they intend to do so in the coming year. These numbers are double for the 45 to 54 year olds who now see early retirement, once around the corner, as an elusive concept.
Most pundits who crow about green shoots and about an inventory restocking in the third quarter giving way towards some sustainable economic expansion live in the old paradigm. They don’t realize, for whatever reason, that the deflationary aftershocks that follow a post-bubble credit collapse typically last for 5 to 10 years. Businesses understand better than the typical Wall Street or Bay Street economist and strategist that everything from order books, to output, to staffing have to now be restructured to adequately reflect a permanently lower level of leverage in the economy.
Indeed, by our estimates, there is up to another $5 trillion of household debt that has to be eliminated in coming years and that process is going to require that consumers go on a semi-permanent spending diet. Companies see this, which is why they are not just downsizing their payroll, but have also cut the workweek to a record low of 33.1 hours. Fewer people are working and those that are still working have seen their hours dramatically cut this cycle.
Companies are finding other ways to save on the aggregate labour cost bill as well, which may be a factor reinforcing the uptrend in the personal savings rate (see more below). For example, a rapidly growing number of employers are now suspending contributions to worker 401(k) plans. According to a joint survey by CFO Research Services and Charles Schwab, nearly 25% of U.S. companies have either suspended their plans or are planning to do so (this is up from 2% at the turn of the year). Again, how we end up squeezing inflation out of the system when the labour market is clearly deflating wages and benefits for the 70% of the economy called the consumer is going to be interesting to watch.
We can’t let a Friday go by without something Employment/Income related. Hence, this lovely BEA chart, showing changes in personal income by state: The data for Q1 — yes, it is both old and lagging — is still stunning nonetheless: 74% of the states showed a drop in Personal Income. > Personal Income Changes, by…Read More
Not surprisingly, when a person goes from making $750k as a bond trader, to $60k as a high school teacher, their spending habits change. That is the obvious but nonetheless interesting point of a Bloomberg article on the impact of Wall Street’s meltdown beyond lost finance jobs. The net result is less business, revenue and…Read More
To be filed under “Are you shitting me?”: “Workers at the largest financial institutions are on track to earn as much money this year as they did before the financial crisis began, because of the strong start of the year for bank profits. Even as the industry’s compensation has been put in the spotlight for…Read More
From Portfolio, by The Number author Lee Eisenberg. “The Number” used to be the “Fuck You Number”– the dollar amount that allowed you to tell your boss fuck you. In a recent Portfolio article, Eisenberg’s latest variation is the “I’m Fucked number” — the smallest number that you can get by on. > > via…Read More
New York State Attorney General Andrew Cuomo is none too happy with $4 billion in recent Merrill Lynch bonuses! Enjoy: > AG Cuomo. MERpdf Publish at Scribd or explore others: Finance & Investing Business & Legal executive compensati
Nice pair of tables from the NYT: > Sources: In Curbing Pay, Obama Seeks to Alter Corporate Culture STEPHEN LABATON and VIKAS BAJAJ NYT, February 4, 2009 http://www.nytimes.com/2009/02/05/us/politics/05pay.html Scrutiny of Bankers’ Perks Will Grow, Too ERIC DASH NYT, February 4, 2009 http://www.nytimes.com/2009/02/05/business/05perks.html