Sunday, August 16, 2009

The firing is still very widespread

I wanted to get this out right around the labor report; but alas, life kind of "took over". I digress. The Bureau of Labor Statistics reported that the private payroll (total nonfarm payroll minus government jobs) shrank by just 254,000 jobs in July, the smallest drop since August 2008 (chart to left).

The news of 254k jobs lost in one month would be disastrous in any other period of time, except during a recession that claimed almost 7 million private jobs. So the trend is upward...good.

The BLS releases data about the spread of firings across 278 private industries and 84 manufacturing industries, the diffusion index (see the BLS handbook here for a description of the diffusion index). And although the firing of workers is definitely not as widespread as in January 2009, it's still broad.

The chart above extrapolates the net percentage of industries in private nonfarm payroll and in manufacturing that increased (+) or decreased (-) their workforce over the month according to the BLS' diffusion index spanning the period Jan. 1991 to July 2009. It basically measures how widespread is the current payroll trend. As you can see, it is still strong and to the downside, with 39.8% more private and 55.4% manufacturing industries firing workers than are hiring workers, respectively.

Notice that during the last jobless recovery, where the private payroll fell for 16/20 months following the end of the recession (November 2001 according to the NBER), the net-percentage of industries firing workers stabilized for about a half of a year (the red arrows). However, at the end of 2002, the firing started again. My point is: don't break out the champagne - we are not out of the woods yet.

But I stand by my previous conjecture: that the productivity gains (yes, gains) indicate that firms are firing much more coincidentally than in previous recessions. And as soon as demand resumes, private industries will have to hire in order to satisfy production. Of course, that has not happened yet.

Rebecca Wilder

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