Saturday, 10 January 2009

Biggest Yearly Jobs Loss Since 1945

Sounds like an alarmist headline doesn't it? It's actually not as bad as it seems. That might seem to be a strange thing to say as the US economy lost more jobs in 2008 than any year since 1945, but what isn't taken into account is the size of the labor force in previous periods.

But firstly, the December non-farm payroll report was a shocker, -524k jobs were lost in December as well as a further -167k downward revisions to October and November. The unemployment rose to it's highest level since 1993 at 7.2%.

Normally I'd give a breakdown of where all the jobs were lost but what is the point? They're being lost everywhere except in small parts of government and places like Healthcare and Education.

About the only other thing of note is that until recently job losses have mainly been in manufacturing and construction, however the service sector is now shedding jobs at a rapid rate meaning that the recession is full blown and just really kicking into to stride in the last few months.

Back to the point about putting the job losses into perspective. Take for example the -602k jobs lost in December 1974. That number is only slightly more than the last couple of months, however the total number of people employed in December 1974 was 77.7 million. Thus the number of jobs lost in that month represented approximately 0.8% of the total.

The worst month for job losses in 2008 was November (notwithstanding revisions to December) in which -584k jobs were lost. The total number of people employed in November was 136 million so the job losses in that month was 0.4% of the total.

Another way to look at it would be to say that we would need to see job losses of close to 1 million per month in current times to be as bad as some previous periods. The positive side is that, current job losses are only as bad as previous deep recession such as the early 1980's or the mid 1970's. The negative side is that they could get much worse.

The chart above shows total US non-farm employment over the last decade. As you can see, the downward trajectory of job losses in the current recession is much steeper than the previous one and is getting steeper. 2.6 million jobs were lost in 2008, You can expect that many to be lost in 2009 and thus the unemployment rate to go north of 9%.

Also be careful when comparing the unemployment rate to prior periods. We all know that unemployment reached 25% at the height of the great depression. If you want to compare to the great depression, you should use a number the BLS publishes called U6.

U6 is an alternative measure of unemployment that includes marginally attached workers and those employed part-time but that would like work full time. Another term used to describe these people is underemployed. That rate is currently at 13.5% as shown above and in my opinion headed closer to 18% before it peaks.