Jobs – the rest of the story…..

First, I’d like to thank Bill at Calculated Risk for the charts that you’ll see below.   He does a great job in showing the markets in “pictures.”

There has been a lot of talk about the June employment reports and
how they are somewhat of a “watershed” event.   I’m going to take a few
minutes (actually more than a few) and work through the various
components so that it something we can all fully understand.   Oh, and
I’m also going to throw some thoughts in there about what it means for
the housing and mortgage markets.

To start, let’s take a look at the unemployment rate…….

A couple of points about this graph:

• Unemployment isn’t the hightest that we’ve seen in my lifetime, but it’s a close second and if you look at the “trajectory” of the unemployment rate, it could very well hit that number.
• The year over year drop in the employment rate is the largest we’ve seen since 1960.   That means that over 4% of the population had jobs a year ago but don’t have jobs now.    That’s a tough number.

This next chart is an interesting one.   It tracks the job losses as related to the peak employment of that market.   In other words, how far has the market fallen and how long did it take to get to that point.    More comments on the other side of the graph……

A couple of observations:

• Only the Post WWII job losses had a sharper and larger overall job loss ratio than we have so far and frankly, their’s was very understandable.   If we aren’t needing thousands and thousands of guns and ships and tanks, we don’t need the people making them.
• The majority of the recessions saw an uneven descent into joblessness.   It kind of moved in fits and starts.   Our recession hasn’t.   It’s been pretty much a waterslide that started a little slow and then has gone straight down.   Anyone been to Blizzard Beach at Disney?
• We aren’t quite following the trajectory of the other recessions and I think the main reason is because this recession was caused by an overabundance of debt and that’s going to take a longer time to deal with……

Two things that struck me about this graph:

• Just under 60% of the population is employed.   I’m assuming that the “non-employed” includes retired, stay at home moms, students etc.   I would have expected that number to be higher.
• Even though it’s dropped dramatically, it’s been quite a bit lower in the last 40 years than it is now.

Is the employment picture really worse than it looks?   Let me explain:

• The number of people who are working part time jobs because they can’t get full time jobs is almost double what it was 2 years ago.
• Are we splitting many jobs between part time workers?   Are there businesses who are hiring 2 part time workers rather than one full time because it’s cheaper?
• So if you “combined” those part time jobs into full time jobs, would we have that many more people unemployed and the jobless rate would be how much higher?

Not much needs to be said about this one.   There’s been a continuing deterioration in the number of hours that production workers are putting in as the manufacturing industry is shedding jobs and sending more business overseas…….

Do you remember the stress tests that the banks were put under?   And how the government set “scenarios” that they were comparing the banks to in regards to various economic standards?   How was Citibank going to hold up if unemployment went to _____?   That type of thing…..

Well, take a look at the chart below.   Both the first and second quarter of 2009 have been worse than the worst case scenario from the government.    Does that make you a little uncomfortable about the results of the stress test?

The chart below (the last one) shows a couple of interesting things about unemployment claims (see below)

• Both initial claims and continued claims are up substantially from the start of the recession.
• Both of them also show a noticeable downturn recently.   Is the downturn enough to establish a trend?   Not necessarily but it’s a potentially good sign.

So what do you do with this knowledge?
I’m going to end every (or at least 96%) of the posts on here with that question and then I’ll answer it.   Knowledge for knowledge sake doesn’t do any good.   Here are some suggestions on what to do with the knowledge about the jobs situation:

• Take the role of a financial counselor and help your clients who are struggling.   There are many people who are struggling now and taking the opportunity to help them through their struggle will not only earn you a grateful client but a solid referral source.
• Don’t spout the “platitudes” that make people feel someone is just a sales person.   Acknowledge and be sensitive to what’s happening in the market.
• Realize that this big of a hurdle as far as jobs is going to take some time to overcome and that therefore a change in real estate plans might not be best for everyone now.

I’ll continue to be in touch.   Let me know how I can help.

Tom Vanderwell
tvanderwell@straighttalkaboutmortgages.com

Employment Report

Tags: Jobs and what to do about them

This entry was posted on Friday, July 3rd, 2009 at 3:30 pm and is filed under Market Musings. You can follow any responses to this entry through the RSS 2.0 feed.