When Will the Jobs Return?

Despite the fact that most economic numbers are currently moving in the right direction, one statistic remains stubbornly high: the unemployment rate. The question on everybody's lips is when will this number come down? Let's look at the data to see what it says.

Let's begin with an analogy: if you have a heart attack on Monday, you won't run the marathon on Friday. To extrapolate this to economic terms, an economy is not going to experience several months of job losses above 600,000 and then show job growth within a few months; it's just not going to happen that way. And given the severity of the job losses earlier this year, it's more than likely we'll see at least nine months of bad numbers and probably longer. The reason is simple: an economy the size of the US' does not turn on a dime. It takes time to go from massive losses to gains. That's just the way it works.

That being said, let's look at history to see when we should start to expect a drop in the unemployment rate. Below are three graphs that coordinate two data sets: the year over year percentage change in GDP and the unemployment rate. Each chart is broken down into smaller, more easily understood components -- the first is the late 40s to the end of the 1950s, the second is from 1960 to 1980 and the third is from 1980 to 2000.

All of these charts tell the same story: until we see a year over year increase in GDP we're not going to see a drop in the unemployment rate. The intuitive reason is pretty simple: businesses need to see a solid reason to hire employees. That solid reason is a growing economy. So, business needs to see a growing economy before they start to hire people. The latest GDP report showed a drop of 1% in GDP. In other words, it's highly unrealistic to expect the unemployment rate to drop given that fact.

Let's look at the current employment situation to gleam some additional information. We'll break it down into initial unemployment claims and then continuing unemployment claims.

Several commentators have noted the 4-week moving average of initial unemployment claims has increased the last two weeks. This is correct. However

notice the overall trend is still down. The 4-week moving average has been dropping since roughly the end of March. In other words, the longer trend for initial unemployment claims is still positive. In addition

despite a recent increase, the Challenger jobs cut report has printed a substantial drop. And finally,

seasonally adjusted mass lay-off events have dropped as have

The total number of mass lay-off claimants.

In other words, additional data points to a continued improvement in the initial unemployment claims data. This means we can expect a slow decrease in the number of people unemployed for different periods of time.

Let's look at the time structure of unemployment. This means we're going to break down the total number of unemployed into the length of time they have been unemployed.

The number of people unemployed for less than 5 weeks has been decreasing since the beginning of the year.

The number of people unemployed for 5-14 weeks dropped in the last unemployment report, as did

The number of people unemployed for 15-26 weeks. However,

he number of people unemployed for 27 weeks or longer continues to increase and is at an all time high.

Let's tie all of this information about unemployment together.

1.) The trend of initial unemployment claims is down. We see this in the 4-week moving average, along with other data such as the Challenger job cut report, the decrease in the number of seasonally adjusted mass lay-off events and the decrease in the number of seasonally adjusted people laid-off in mass lay-offs. Because the number of initial claimants is decreasing, we can expect a slow improvement in the number of people unemployed for various lengths of time.

2.) The structure of unemployment is showing improvement. The number of people unemployed for less than 5 weeks has been decreasing since the beginning of the year. The number of people unemployed for 5-14 weeks and 15-26 weeks dropped in the latest jobs report. The longer term unemployed are still increasing, but given the drops in the other metrics this number should start to show a decrease within the next 4-6 months.

Now -- that leads to the final question: when will the jobs come back? In order for that to happen we need to see at least one quarter of a positive GDP and probably two. That means the soonest we can expect a drop in the unemployment rate would be the a few months from now and that is only under the rosiest of scenarios. The most likely possibility is it won't be until the end of the first quarter of next year before we start to see a ticking down (and that assumes a stronger rate of growth than I think is going to happen).

So, in the meantime what should we do?

1.) Make sure the longer-term unemployed are given benefits and other help to ease their suffering.

2.) Ask ourselves is there a way we can better implement the stimulus money to increase the rate of GDP growth and thereby see a faster drop in GDP?

Comments

[wietog]

Perhaps the supposed upswing is an artificial translation of lowered overhead from - wait for it - all the LAYOFFS.

[despin]

Countless jobs are gone and won't come back.

- finance and insurance
- marketing. No amount of mailers and clever ads can wring blood from turnips.
- housing anything. Builders, architects, flippers, brokers. Anything.

There are probably other fields that burned up in the furnace of the Great Recession, that I'm not thinking of.

Hiring will occur in these realms, eventually. But not anything CLOSE to what once was.

[provgrays]

The good jobs left years ago and much of this country is too poorly educated to perform good jobs if they were to ever return. This government preaches about the right of corporations to make billions but nobody says a word about the right of mere mortals to pay their bills with honest and fairly compensated labor.

[Patrician]

I really appreciate the clarity this man offers to complex financial data.

[jrmarsh]

Thanks for boring the heck out of us with those graphs.

[wietog]

:)

[GrahamInCanada]

Part I

Mr. Stewart wrote: "an economy is not going to experience several months of job losses above 600,000 and then show job growth within a few months."

According to official statistics, http://www.census.gov/statab/hist/02HS0029.xls, in 1938 the US net loss of jobs was over two million, in 1939 the net gain was 1.5 million.

in 1945 the loss was over 1 million, in 1946 the gain was over 2.5 million.

In 1954 the loss was over 1 million, in 1955 the gain was over 2 million.

I could go on...

[provgrays]

Please don't...

[GrahamInCanada]

Part II

On Mr. Stewart's first graph above, he discredits his argument by setting the scale at percentage change from last year, rather than absolute numbers or actual percentages.

He claims that the first graph shows that unemployment did not rise until the economy bottomed out, say, in 1954. But his graph neither shows when the unemployment rate bottomed out nor when the economy bottomed out, it shows a massaged delta instead of the data.

For example, look at the period 1950 to 1953 in the graph. Examine the unemployment curve. Can you discern from the graph that the unemployment rate fell from over 4% to less than 3% during that period by reading this graph?

You cannot, because it does not actually show the unemployment rate, it shows a related delta.

Using occam's razor, one can posit that if Mr. Stewart could make his point using actual statistics, he would. That he chooses to add unnecessary filters and display selected deltas instead, indicates that he could not prove his point using actual statistics.

In dispute of his thesis, until Reagonomics, governments in the United States considered it their duty to maximize employment and maximize the size of the middle class. Job growth will return when such government policies return.

[research]

Hale,

The World GDP is about 70T$.

We just lent the very Banksters who crashed the economy 24T$

The Banksters reward themselves with enough bonuses to BUY all the "bad" loans!

The Banksters continue and accelerate the same fraudulent derivatives trading them TARP so lavishly rewarded them for.

They could care less about mainstreet. The only thing saving main street is the paltry 800B$ OVER TEN YEARS.

[peterg76]

I'm glad someone is paying attention to reality!

[paixa3]

Hale, I used to have some respect for your articles. Unfortunately, somewhere along the line, you joined the spineless to tell the truth.

TRILLIONS to banks, wall street and insurance companies IS NOT going to get you any jobs.

Sorry to disappoint you.

[jrmarsh]

Sorry to disappoint you but it will, if you're a banker that is....

[remedy]

I think one of the biggest things holding back some job creation is healthcare. Right now my husband and i would start our own business only thing holding us back is health conditions that if we get coverage on our own will cost 1200 a month and thats with no copays or meds. So not only would we create two jobs we would be opening two more in the job market. We cant let healthcare discourage small business and self employment and right now it is. Healthcare as it stands is dragging us down a hole quickly, just how long are we gonna continue on this path of failure. Not to mention the moral question of letting millions go without care. No excuse in a wealthy nation like USA.

[fequalma]

The VELOCITY of job losses has less magnitude simply because there are so few employers remaining who can lose more people (or move their jobs overseas). But the economy can still collapse further, and I would argue it shall.

We don't create anything any more, so we won't be hiring those manufacturing people back. All their jobs are overseas.
So the only jobs we can create are those where we count or administer all the money being loaned to us by asia and europe and the retail selling of the stuff that we import (because we don't make it here any more). But they are finally showing signs of wising up and finding elsewhere to invest since the usa will, surely, default on its debt some day soon or shrink the value of their investments by monetizing it. It cannot not happen.
You really need more than cherry-picked historical graphs to analyze this. There really has not been a similar situation since 1929 - 1940; and even that is dissimilar enough to require further analysis.

The bottom line is: this is really bad news.

[powercosmic]

How can any jobs begin to return, when the average American is completely deluded about our place in the world?

Here's the ugly, ugly, truth:

Our Health Care system is THE MOST EXPENSIVE in the world, yet our system is ranked 37th in the world for quality of care and outcomes.

It is difficult to attract businesses to America because of out health care costs and liabilities to employers are TOO HIGH.

America has less than 5 percent of the global population yet we consume 25% of the worlds crude oil, foreign business leaders are much more aware of America "Oil Problem" than Americans are.

Global production of crude oil peaked in the 2005-2006 time frame at 85M barrels per day, as the fundamental "currency" of the global economy crude oil is about to begin is inexorable price hike despite ever lower consumption, which country is the MOST VULNERABLE ?

A large proportion of the American electorate believes that America's economy is the largest and most robust in the world and that they have nothing to worry about. This is a huge problem because this prevents them from taking appropriate actions.

No jobs coming to America for a very very long time...

[slowtono]

What jobs? You need industry, goals, and capital idealism to create jobs. You need plans such as ALL of America will be solar powered. ALL of America will use new supersonic trains. All of America will live on farms. Not well lets see, we can have 11% on solar in 10 years if we can get green peace to allow it. Without a corporate captain following a compass of direction full ahead you go no where.

[greyhound2]

After the depression of 1890, we had World War I in 1914. After the depression of 1932, we had World War II in 1940, after the depression of 2009, we will have World War III probably by 2014. World Wars take a lot of people out of the job market, create shortages and provide lots of overtime for those who get to stay home.