From time to time, I will write posts that contain the Unemployment Rate or various other job loss measures. I show these statistics as they are widely used and quoted by others.
From my perspective, however, the methodology used to measure the various job loss and unemployment statistics does not provide an accurate depiction. There are a variety of reasons for this that become evident if one carefully analyzes the unemployment calculations.
I feel that if one were to accurately gauge the Unemployment Rate, the rate would be at least 20%, which is roughly double the official Unemployment Rate of 9.8%. This 20% figure is above the U6 measure of 17% that many have adopted as an accurate benchmark.
What is bothersome is that even the official unemployment statistics that I show in the blog posts display a very worrisome situation.
SPX at 1054.65 as this post is written
Showing posts with label job losses. Show all posts
Showing posts with label job losses. Show all posts
Tuesday, October 6, 2009
Monday, October 5, 2009
Another Chart Reflecting Job Losses
I would like to present an interesting chart on job losses. My last chart concerning job losses was posted on September 10. The commentary I presented there is still highly applicable to the latest unemployment numbers.
This chart is from http://www.calculatedriskblog.com/ from October 2. I like this chart as it presents a depiction of the relative severity of our current period of economic weakness vs. that of prior periods from both a "duration" and "extent" perspective:
click on chart to expand
There should be no doubt that this unemployment situation is severe, especially in light of the fact that other employment/income options like starting one's own business in this economic climate would be (very) difficult.
For those who haven't yet read it, I wrote a blog series titled "Why Aren't Companies Hiring?"
SPX at 1031.47 as this post is written
This chart is from http://www.calculatedriskblog.com/ from October 2. I like this chart as it presents a depiction of the relative severity of our current period of economic weakness vs. that of prior periods from both a "duration" and "extent" perspective:
click on chart to expand
There should be no doubt that this unemployment situation is severe, especially in light of the fact that other employment/income options like starting one's own business in this economic climate would be (very) difficult.
For those who haven't yet read it, I wrote a blog series titled "Why Aren't Companies Hiring?"
SPX at 1031.47 as this post is written
Thursday, September 10, 2009
An Interesting Chart On Job Losses, Revisited
Here is an updated chart from chartoftheday.com that I have shown and discussed previously, in my July 7 post:
http://www.chartoftheday.com/20090904.htm?T
There are other charts similar to this, from other sources...however, I find this chart particularly interesting as it incorporates the long-term averages of two other periods.
As I wrote in my July 7 post:
"As one can see, the current degree of job losses is rather atypical.
I would also like to highlight another issue as well. From a historical perspective, this (purported) recession, that the NBER has classified as having started in December 2007, is getting "long in the tooth" from a historical perspective. The following blog post does a good job of summarizing how long recessions typically last:
http://www.calculatedriskblog.com/2009/06/update-what-is-depression.html
As one can see, from a historical standpoint the severity of the job losses, as well as the length of this (purported) recession are atypical. Both have persevered in the face of very large amounts of intervention, including stimulus efforts.
As I have written about previously, the above is yet more evidence that we may well be in a "new (economic) environment" - with the associated implications..."
SPX at 1031.85 as this post is written
http://www.chartoftheday.com/20090904.htm?T
There are other charts similar to this, from other sources...however, I find this chart particularly interesting as it incorporates the long-term averages of two other periods.
As I wrote in my July 7 post:
"As one can see, the current degree of job losses is rather atypical.
I would also like to highlight another issue as well. From a historical perspective, this (purported) recession, that the NBER has classified as having started in December 2007, is getting "long in the tooth" from a historical perspective. The following blog post does a good job of summarizing how long recessions typically last:
http://www.calculatedriskblog.com/2009/06/update-what-is-depression.html
As one can see, from a historical standpoint the severity of the job losses, as well as the length of this (purported) recession are atypical. Both have persevered in the face of very large amounts of intervention, including stimulus efforts.
As I have written about previously, the above is yet more evidence that we may well be in a "new (economic) environment" - with the associated implications..."
SPX at 1031.85 as this post is written
Thursday, July 30, 2009
"Why Aren't Companies Hiring?" Part V
Businesses have reacted to the tumultuous economic conditions in many ways. A logical action has been to reduce cash outlays to a level appropriate to what the new economic conditions seemingly warrant.
Along these lines, expenses have undergone scrutiny and in many cases have been cut, in order to preserve cash as well as improve profitability (or limit losses). Labor costs are notable expenses because of their size.
Many firms have incurred double-digit (percentage) revenue losses over the last few quarters. This can create a rather alarming atmosphere, especially in light of the tremendous overall uncertainty going forward, as discussed in the last post. In this type of fast-moving, uncertain environment where revenues, and losses, can accrue quickly, many businesses have felt they have had to move fast in order to contain potential damage.
Large-scale layoffs have occurred for a number of reasons. Under such uncertain, and unpleasant economic conditions, layoffs represent a quick means by which to bring down total costs and preserve cash. Layoffs have, over the years, become a type of "standard operating procedure" in business, i.e. they are viewed as a rational decision during tough times and are not stigmatized like they may have been a few decades ago. While there are of course many arguments that can be made with regard to the worth of an employee, as well as viewing employees as assets as opposed to expenses, in reality it is very difficult to quantify how one, or a number of, employees' dismissals will negatively impact a firm in the future. In other words, quantifying an employee's value is very difficult. However, determining each employee's total cost is rather straightforward.
Furthermore, there are other factors at play. Employee "turnover" costs are difficult to measure. This refers to how expensive it is for a firm to have high employee turnover, as opposed to low turnover. It is easy to neglect this, and other issues, in difficult economic times.
Another factor that comes into play is executive compensation issues as well as stock market pressures. How are the major executives getting paid and influenced, and how does this directly and indirectly impact hiring and employee costs? Since the highest executives are (likely) getting paid and otherwise motivated to produce profitability, this may well serve as a major influence when viewing employee expense levels. The executive compensation agreements and stock market pressures can create a relatively "short-term" outlook with regard to profitability and a resultant bias against "expenses."
One also has to wonder as to whether employees are at least partially "bearing the brunt of" poor operating practices that have exacerbated adversity at firms during this period of economic weakness. There are many potential areas within any firm that may be better managed even given the complicated and unpredictable nature of this economic weakness. This "inefficiency" may be compounded should greater economic weakness develop. If a firm is unaware of these "inefficiencies", it may neglect them, thereby causing greater losses, which in turn produces greater pressure to reduce expenses and therefore employees. These "inefficiencies" may be large, given the complicated nature of our current economic environment. Also, the previously mentioned issue that most firms don't have operating experience in pronounced economic downturns also plays a role in exacerbating this issue.
As seen by these past five posts, the question "Why Aren't Companies Hiring?" has a complex answer that encompasses many different factors. Given the severity of the problem, as well as its adverse impact on the economy, the natural question becomes what can be done to encourage, or cause hiring to happen? This question, again, has a very complex answer, especially in light of issues regarding Sustainable Prosperity.
As I started this series of posts with a quote, I will end it with one as well. This quote underscores the severity of the unemployment situation, and is from Mortimer Zuckerman discussing the unemployment levels. It can be found in his recent Wall Street Journal editorial found here:
http://online.wsj.com/article/SB124753066246235811.html
"The job losses are also now equal to the net job gains over the previous nine years, making this the only recession since the Great Depression to wipe out all job growth from the previous expansion."
SPX at 975.15 as this post is written
Along these lines, expenses have undergone scrutiny and in many cases have been cut, in order to preserve cash as well as improve profitability (or limit losses). Labor costs are notable expenses because of their size.
Many firms have incurred double-digit (percentage) revenue losses over the last few quarters. This can create a rather alarming atmosphere, especially in light of the tremendous overall uncertainty going forward, as discussed in the last post. In this type of fast-moving, uncertain environment where revenues, and losses, can accrue quickly, many businesses have felt they have had to move fast in order to contain potential damage.
Large-scale layoffs have occurred for a number of reasons. Under such uncertain, and unpleasant economic conditions, layoffs represent a quick means by which to bring down total costs and preserve cash. Layoffs have, over the years, become a type of "standard operating procedure" in business, i.e. they are viewed as a rational decision during tough times and are not stigmatized like they may have been a few decades ago. While there are of course many arguments that can be made with regard to the worth of an employee, as well as viewing employees as assets as opposed to expenses, in reality it is very difficult to quantify how one, or a number of, employees' dismissals will negatively impact a firm in the future. In other words, quantifying an employee's value is very difficult. However, determining each employee's total cost is rather straightforward.
Furthermore, there are other factors at play. Employee "turnover" costs are difficult to measure. This refers to how expensive it is for a firm to have high employee turnover, as opposed to low turnover. It is easy to neglect this, and other issues, in difficult economic times.
Another factor that comes into play is executive compensation issues as well as stock market pressures. How are the major executives getting paid and influenced, and how does this directly and indirectly impact hiring and employee costs? Since the highest executives are (likely) getting paid and otherwise motivated to produce profitability, this may well serve as a major influence when viewing employee expense levels. The executive compensation agreements and stock market pressures can create a relatively "short-term" outlook with regard to profitability and a resultant bias against "expenses."
One also has to wonder as to whether employees are at least partially "bearing the brunt of" poor operating practices that have exacerbated adversity at firms during this period of economic weakness. There are many potential areas within any firm that may be better managed even given the complicated and unpredictable nature of this economic weakness. This "inefficiency" may be compounded should greater economic weakness develop. If a firm is unaware of these "inefficiencies", it may neglect them, thereby causing greater losses, which in turn produces greater pressure to reduce expenses and therefore employees. These "inefficiencies" may be large, given the complicated nature of our current economic environment. Also, the previously mentioned issue that most firms don't have operating experience in pronounced economic downturns also plays a role in exacerbating this issue.
As seen by these past five posts, the question "Why Aren't Companies Hiring?" has a complex answer that encompasses many different factors. Given the severity of the problem, as well as its adverse impact on the economy, the natural question becomes what can be done to encourage, or cause hiring to happen? This question, again, has a very complex answer, especially in light of issues regarding Sustainable Prosperity.
As I started this series of posts with a quote, I will end it with one as well. This quote underscores the severity of the unemployment situation, and is from Mortimer Zuckerman discussing the unemployment levels. It can be found in his recent Wall Street Journal editorial found here:
http://online.wsj.com/article/SB124753066246235811.html
"The job losses are also now equal to the net job gains over the previous nine years, making this the only recession since the Great Depression to wipe out all job growth from the previous expansion."
SPX at 975.15 as this post is written
Wednesday, July 29, 2009
"Why Aren't Companies Hiring?" Part IV
In addition to the adversity and financial strains suffered by firms during this period of economic weakness, there exists significant uncertainty on many fronts. As mentioned in the last post, many businesses would find any further economic weakness to pose a formidable challenge. Although economist forecasts are predicting a weak economic recovery from here, economic forecasts have proven less than accurate the last couple of years. Furthermore, it could prove especially difficult to predict how any one company's demand would be specifically impacted by further economic weakness.
In addition to the uncertainty over future economic conditions, there is a broad array of factors and issues that create uncertainty. Some of these factors and issues have to do with proposed legislation, such as the environmental legislation, health care reform, various financial reform provisions, and other possible legislative acts. All of these issues pose a lot of questions right now, as none are finalized yet each hold the potential for increased costs as well as changes in "the ways things are done."
In addition to these legislative acts, there are probable increases in taxes, as well as changes in tax methods forthcoming. Again, both the financial impact as well as the inherent change create uncertainty.
Cumulatively, this high level of uncertainty both in future economic conditions as well as legistlative and other changes, appears to be one filled with potential challenges and increased costs. Even if the economy follows the economist consensus of a gradual weak, but sustained recovery, these economic conditions could prove challenging for many firms, especially those already financially impaired.
This uncertainty factor is highly significant with regard to companies' hiring, or lack thereof, as further discussed in the next post.
Part V to follow...
SPX at 979.62 as this post is written
In addition to the uncertainty over future economic conditions, there is a broad array of factors and issues that create uncertainty. Some of these factors and issues have to do with proposed legislation, such as the environmental legislation, health care reform, various financial reform provisions, and other possible legislative acts. All of these issues pose a lot of questions right now, as none are finalized yet each hold the potential for increased costs as well as changes in "the ways things are done."
In addition to these legislative acts, there are probable increases in taxes, as well as changes in tax methods forthcoming. Again, both the financial impact as well as the inherent change create uncertainty.
Cumulatively, this high level of uncertainty both in future economic conditions as well as legistlative and other changes, appears to be one filled with potential challenges and increased costs. Even if the economy follows the economist consensus of a gradual weak, but sustained recovery, these economic conditions could prove challenging for many firms, especially those already financially impaired.
This uncertainty factor is highly significant with regard to companies' hiring, or lack thereof, as further discussed in the next post.
Part V to follow...
SPX at 979.62 as this post is written
Tuesday, July 28, 2009
"Why Aren't Companies Hiring?" Part III
The economic weakness that has occurred has caused a significant amount of financial damage. This can be seen in a variety of indicators and statistics, such as widening credit spreads, defaults, credit downgrades, etc. These worsening conditions have been accompanied by a curtailed (in many cases severely) access to credit. Whereas credit and other types of funding were abundantly plentiful (and in many cases cheap) into 2007, that level of credit and financing availability has since undergone a dramatic reversal.
An array of adverse business conditions have added to the misery. These have taken various forms, from very high excess manufacturing capacity to low capital investment.
In addition to these adverse conditions and financial strains, a major factor going forward will be consumer spending. As I discussed in a June 18 post, the ability for the consumer to keep spending may well be constrained going forward due to a variety of factors. This will be one more "headwind" that businesses will likely encounter.
Should further significant economic weakness occur, there is another major concern relating to businesses - their ability to successfully manage through severe economic weakness. Most businesses have not been exposed to the severity, both in length and extent, of economic weakness that further economic weakness would entail. This lack of operating experience could pose significant challenges and hurdles to businesses that have already been adversely impacted.
Part IV to follow...
SPX at 977.57 as this post is written
An array of adverse business conditions have added to the misery. These have taken various forms, from very high excess manufacturing capacity to low capital investment.
In addition to these adverse conditions and financial strains, a major factor going forward will be consumer spending. As I discussed in a June 18 post, the ability for the consumer to keep spending may well be constrained going forward due to a variety of factors. This will be one more "headwind" that businesses will likely encounter.
Should further significant economic weakness occur, there is another major concern relating to businesses - their ability to successfully manage through severe economic weakness. Most businesses have not been exposed to the severity, both in length and extent, of economic weakness that further economic weakness would entail. This lack of operating experience could pose significant challenges and hurdles to businesses that have already been adversely impacted.
Part IV to follow...
SPX at 977.57 as this post is written
Monday, July 27, 2009
"Why Aren't Companies Hiring?" Part II
The economic weakness that accelerated in the latter months of 2008 and into 2009 played out in a very "tricky" fashion.
Very few mainstream economists foresaw what would happen. A testament to the complexity of the situation as 2008 progressed was the business shows airing arguments during the summer as to whether the economy was even in a recession.
Needless to say, that argument was answered by the 4th quarter. The list of rather unbelievable economic occurrences in 2008, and into 2009, is very extensive.
Given the "trickiness" in which the economic weakness has played out, one question that may be asked is "How well have businesses reacted?" As well, another major question becomes, "Given how businesses have reacted so far, how are they positioned for the future?"
Both of these questions are very difficult to answer. With regard to the first, there really is no established "scorecard" with which to grade businesses' response to the events of 2008 and 2009. As aforementioned, the way the economic weakness played out was "tricky" and certainly highly unexpected. While one may argue, in hindsight, that corporate forecasting might have been better, or any number of corporate actions, from cash management to inventory control, could have been more effective, those arguments certainly make more sense "after the fact." Sure, things may have been handled better, but most businesses won't, and can't, be effectively run if they seek to plan for contingencies that, at the time, seem very unlikely, if not unimaginable.
Perhaps even more important is the second question, "Given how businesses have reacted so far, how are they positioned for the future?" If one believes the current consensus among professional economists, that the worst (as far as economic weakness) is behind us, and that a steady, if not weak, economic recovery will continue through 2010, then the answer appears to be that businesses, as a whole, will continue to face a challenging environment, but in most cases will be able to survive.
However, if the economy defies consensus expecations, and materially weakens (a view I hold, as previously mentioned in this blog), it is much harder to generalize how adversely businesses would be impacted.
In the next post, I will discuss some issues that bear significance should this more adverse economic scenario occur.
Part III to follow...
SPX at 977.68 as this post is written
Very few mainstream economists foresaw what would happen. A testament to the complexity of the situation as 2008 progressed was the business shows airing arguments during the summer as to whether the economy was even in a recession.
Needless to say, that argument was answered by the 4th quarter. The list of rather unbelievable economic occurrences in 2008, and into 2009, is very extensive.
Given the "trickiness" in which the economic weakness has played out, one question that may be asked is "How well have businesses reacted?" As well, another major question becomes, "Given how businesses have reacted so far, how are they positioned for the future?"
Both of these questions are very difficult to answer. With regard to the first, there really is no established "scorecard" with which to grade businesses' response to the events of 2008 and 2009. As aforementioned, the way the economic weakness played out was "tricky" and certainly highly unexpected. While one may argue, in hindsight, that corporate forecasting might have been better, or any number of corporate actions, from cash management to inventory control, could have been more effective, those arguments certainly make more sense "after the fact." Sure, things may have been handled better, but most businesses won't, and can't, be effectively run if they seek to plan for contingencies that, at the time, seem very unlikely, if not unimaginable.
Perhaps even more important is the second question, "Given how businesses have reacted so far, how are they positioned for the future?" If one believes the current consensus among professional economists, that the worst (as far as economic weakness) is behind us, and that a steady, if not weak, economic recovery will continue through 2010, then the answer appears to be that businesses, as a whole, will continue to face a challenging environment, but in most cases will be able to survive.
However, if the economy defies consensus expecations, and materially weakens (a view I hold, as previously mentioned in this blog), it is much harder to generalize how adversely businesses would be impacted.
In the next post, I will discuss some issues that bear significance should this more adverse economic scenario occur.
Part III to follow...
SPX at 977.68 as this post is written
Friday, July 24, 2009
"Why Aren't Companies Hiring?" Part I
"As unemployment approaches 10%, what is less well publicized is that the number of “underutilized” workers in the U.S. has increased dramatically from 15 to 30 million. Those without jobs, as well as those individuals who only work part-time and have become discouraged and stopped looking, total 30 MILLION people. The number is staggering."
-Bill Gross, from the July 2009 Pimco Investment Outlook
_____
The unemployment issue currently facing the country is severe and complex. Although this unemployment problem is to various extents recognized, there seems to be little discussion around the question "Why aren't companies hiring?" The simple, and perhaps indirect answer, is "because the economy is bad."
The next few posts will explore this question "Why aren't companies hiring?"
A few disclaimers with regard to this series of posts:
First, this unemployment/hiring aspect of our current economic situation is very complex. This series of posts will present a simplified approach to the question, as to avoid excessive complexity and length.
Second, as with any discussion of our current economic situation, it is of course impossible, and unwise, to characterize all businesses as if they currently are in the same situation. Obviously, they are all unique; however, there is enough commonality as to be able to generalize to some extent, especially among those businesses that suffer when the economy is weak.
Third, I have many theories as to why companies aren't hiring; this series of posts will explain some of them. The remainder will go undiscussed, at least for now, due to a variety of reasons.
Part II to follow...
SPX at 976.29 as this post is written
Copyright 2009 by Ted Kavadas
-Bill Gross, from the July 2009 Pimco Investment Outlook
_____
The unemployment issue currently facing the country is severe and complex. Although this unemployment problem is to various extents recognized, there seems to be little discussion around the question "Why aren't companies hiring?" The simple, and perhaps indirect answer, is "because the economy is bad."
The next few posts will explore this question "Why aren't companies hiring?"
A few disclaimers with regard to this series of posts:
First, this unemployment/hiring aspect of our current economic situation is very complex. This series of posts will present a simplified approach to the question, as to avoid excessive complexity and length.
Second, as with any discussion of our current economic situation, it is of course impossible, and unwise, to characterize all businesses as if they currently are in the same situation. Obviously, they are all unique; however, there is enough commonality as to be able to generalize to some extent, especially among those businesses that suffer when the economy is weak.
Third, I have many theories as to why companies aren't hiring; this series of posts will explain some of them. The remainder will go undiscussed, at least for now, due to a variety of reasons.
Part II to follow...
SPX at 976.29 as this post is written
Copyright 2009 by Ted Kavadas
Thursday, July 23, 2009
The Commonality of The "Jobless Recovery" Belief
The following story from CNBC.com will serve as a good prelude to a series of posts I will write on joblessness and hiring. It discusses the widely-held (among economists) view that we are entering a "jobless recovery." :
http://www.cnbc.com/id/32104155
It is important to note the commonality of the concept in economists' forecasts.
As I mentioned on June 9, I believe the term "jobless recovery" is a euphemism.
SPX at 976.25 as this post is written
http://www.cnbc.com/id/32104155
It is important to note the commonality of the concept in economists' forecasts.
As I mentioned on June 9, I believe the term "jobless recovery" is a euphemism.
SPX at 976.25 as this post is written
Tuesday, July 7, 2009
An Interesting Chart on Job Losses
I ran across the following chart from chartoftheday.com, and found it interesting:
http://www.chartoftheday.com/20090703.htm?T
As one can see, the current degree of job losses is rather atypical.
I would also like to highlight another issue as well. From a historical perspective, this (purported) recession, that the NBER has classified as having started in December 2007, is getting "long in the tooth" from a historical perspective. The following blog post does a good job of summarizing how long recessions typically last:
http://www.calculatedriskblog.com/2009/06/update-what-is-depression.html
As one can see, from a historical standpoint the severity of the job losses, as well as the length of this (purported) recession are atypical. Both have persevered in the face of very large amounts of intervention, including stimulus efforts.
As I have written about previously, the above is yet more evidence that we may well be in a "new (economic) environment" - with the associated implications...
SPX at 883.05 as this post is written
Copyright 2009 by Ted Kavadas
http://www.chartoftheday.com/20090703.htm?T
As one can see, the current degree of job losses is rather atypical.
I would also like to highlight another issue as well. From a historical perspective, this (purported) recession, that the NBER has classified as having started in December 2007, is getting "long in the tooth" from a historical perspective. The following blog post does a good job of summarizing how long recessions typically last:
http://www.calculatedriskblog.com/2009/06/update-what-is-depression.html
As one can see, from a historical standpoint the severity of the job losses, as well as the length of this (purported) recession are atypical. Both have persevered in the face of very large amounts of intervention, including stimulus efforts.
As I have written about previously, the above is yet more evidence that we may well be in a "new (economic) environment" - with the associated implications...
SPX at 883.05 as this post is written
Copyright 2009 by Ted Kavadas
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