You listen to some of the rah rah Wall Street talking heads and you’d think we’re on the verge of an unprecedented employment boom. Stephen Roach isn’t convinced:
The spin-meisters are hard at work proclaiming the long awaited healing of the US labor market. Jobs have now been up for four months in a row, and many of the so-called leading indicators of future employment growth — jobless claims, work schedules, and purchasing managers� hiring intentions — are flashing green. And so the verdict has been rendered: At long last, the great American hiring machine is finally shifting gears — marking a critical turning point for the US economy on the road to sustainable recovery.
I don�t buy it. As I read the US labor market, there is still compelling evidence of a fundamental breakdown in the time-honored relationship between aggregate demand and employment. While it seems that the worst of the layoff carnage is over in the aggregate — at least for the time being — this recovery bears no relationship whatsoever to the classic hiring-led upturns of the past.
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There seems to be a real disconnect between the actual numbers on the hiring front and the impressions that have been formed in financial markets. Total nonfarm payrolls have expanded by only 328,000 workers over the August to November 2003 period — an average of 82,000 per month. That�s far short of the pace of job creation that normally occurs at this stage in a business cycle recovery — somewhere in the range of 250,000 to 300,000 per month. Yet many have been quick to interpret the recent modest pickup in hiring as a sign that Corporate America is finally breaking the shackles of risk aversion and emerging from the funk of recent years. The mix of recent hiring trends tells a very different picture. It turns out that fully 84% of the total increase in nonfarm payrolls over the August to November period is traceable to hiring in four segments of the labor market — the temporary staffing industry, health, education, and government — where combined jobs have increased by 68,000 per month. In other words, the bulk of the so-called hiring turnaround since August has been concentrated in either the contingent workforce (temps) or in those industry groupings that are least exposed to global competition. This hardly speaks of a US business sector that has consciously made an important transition from downsizing to expansion. It merely reflects the fact that scale is increasing in the most sheltered and least productive segments of the economy.
Those trends stand in sharp contrast to employment conditions in those segments of the economy that are most exposed to tough competitive pressures. Over the past four months, jobs have continued to decline in manufacturing, the information sector (i.e., telecom, publishing, data processing, and broadcasting), wholesale distribution, and finance and insurance. Moreover, at the same time, employment growth has been anemic in transportation and warehousing and in a broad array of professional and business services other than temps (i.e., legal, computer systems design, management consulting). Collectively, these �exposed� segments of the economy employ about 47 million workers, or 36% of the total nonfarm workforce. Over the August to November time period, jobs in this large collection of industries have contracted, on average, by 20,000 per month.
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This jobless recovery has just celebrated its second anniversary. Never in the modern-day history of the US business cycle has there been such a profound shortfall of hiring. For months we�ve been hearing that�s about to change. The recent sharp acceleration in the US economy, in conjunction with a modest improvement on the overall hiring front in the past four months, have led most to believe that an old-fashioned hiring-led recovery is just around the corner. Don�t bet on it. The global labor arbitrage tells me there�s something new and big going on that will continue to defy the optimistic spin that is now being put on a still very sluggish American labor market.