Tuesday, June 09, 2009

Weak Hiring and the Jobless Recovery

by Calculated Risk on 6/09/2009 01:51:00 PM

First a report from Bloomberg: U.S. Third-Quarter Hiring Plans at Record Low, Manpower Says

U.S. employers’ hiring plans for the third quarter held at a record low, signaling fired workers will have to wait many more months to find a job, a survey showed.
...
Companies are “treading slowly and watching with guarded optimism, hoping a few quarters of stability will be the precursor to the recovery,” Jonas Prising, president of the Americas for Milwaukee-based Manpower, said in a statement.
That fits with the Fed Economic Paper I posted yesterday: Jobless Recovery Redux? that argued a jobless recovery is likely.
Our analysis generally supports projections that labor market weakness will persist, but our findings offer a basis for even greater pessimism about the outlook for the labor market.
...
This projection indicates that the level of labor market slack would be higher by the end of 2009 than experienced at any other time in the post-World War II period, implying a longer and slower recovery path for the unemployment rate. This suggests that, more than in previous recessions, when the economy rebounds, employers will tap into their existing workforces rather than hire new workers. This could substantially slow the recovery of the outflow rate and put upward pressure on future unemployment rates.
emphasis added
And Frankels (on the NBER recession Business Cycle Dating Committee) notes: The labor market has NOT yet signaled a turning point (ht Mark Thoma, Paul Krugman)
The members of the NBER Business Cycle Dating Committee (of which I am one) will be responsible for calling the trough when the time is right.
...
Speaking entirely for myself, I like to look at the rate of change of total hours worked in the economy. Total hours worked is equal to the total number of workers employed multiplied by the average length of the workweek for the average worker. The length of the workweek tends to respond at turning points faster than does the number of jobs. When demand is slowing, firms tend to cut back on overtime, and then switch to part-time workers or in some cases cut workers back to partial workweeks, before they lay them off. Conversely, when demand is rising, firms tend to end furloughs, and if necessary ask workers to work overtime, before they hire new workers. (The hours worked measure improved in April 1991 and November 2001 which on other grounds were eventually declared to mark the ends of their respective recessions.) The phenomenon is called “labor hoarding” and it is attributable to the costs of finding, hiring and training new workers and the costs in terms of severance pay and morale when firing workers.
Note that Frankels is making similar arguments as the San Francisco Fed paper - except he is discussing the end of the recession as opposed to a jobless recovery.

And the following graph shows the aggregate hours index from the BLS over several recessions.

Weekly Aggregate Hours Index Click on graph for larger image in new window.

Frankel notes that the "hours worked measure improved in April 1991 and November 2001" and that was a factor in declaring the end of those recessions. In 1991 the index flattened out - and in 2001, after improving slightly at the end of the year, the index actually declined further in 2002 and 2003 (the employment recession lasted until July 2003 by this measure).

This will be an important series to follow in trying to predict when the NBER calls the end of the recession.

As the recession ends, we should see hours worked increase (or at least stop falling), and the number of part time for economic reasons workers decline. New hiring will probably remain sluggish for some time.