Friday, October 3, 2008

Jobs are rotating

Monster Worldwide created these indices of online job demand a few years ago, and they could be one of the best sources available today to judge new job formation. The overall index began to decline right around the time that employment peaked (late 2007). It fell the most from Oct. '07 through Jan. '08, which not coincidentally was a period that registered negative GDP growth according to the BEA. Today it is unchanged from its January '08 levels. So perhaps we have seen most of the decline in jobs.

Most interesting, but not surprising, is that the sectors that have faired the worst are finance and real estate-related professions, while one of the strongest sectors is mining (which includes oil and gas). Real estate job formation has plunged 43% from its high, while finance has dropped 31%. This is an excellent example of how the economy is shifting resources away from the battered real estate and finance sectors and towards sectors with more promise. This is job rotation, not job destruction.

In my experience, you can never underestimate the dynamism and resilience of the US economy.


Tory Conservative said...

Off topic just a bit.

Imagine Barack Obama wins the upcoming presidential election and the Democrats gain several Senate and House seats, increasing their majorities in Congress. How does the economy perform under a "triple-D" government (Demcorat White House, Democrat US House, Democrat US Senate)?

Quite often I read that the business cycle exists independent of which party controls Congress, who is in the White House, how high our taxes are and what legislation is enacted. But if one looks at the economic statistics of other national economies (Germany, Italy, Ireland, Japan), one gets the sense that who wins Congressional elections and Presidential elections does have a real impact on economic performance.

For example, from 2003-2007, the GOP controlled Congress and the S&P 500 went up by 72 percent. From 2007 to today we have had a Democrat Congress and the stock market has declined by 18 percent. The stock market performed better under the GOP Congress during the Clinton admin too (1995-2000) and softened when the Democrats took the Senate in 2001.

Am I on to something? Or does it not matter who wins or loses elections?

Tory Conservative said...

This time on topic.

Your concluding sentance In my experience, you can never underestimate the dynamism and resilience of the US economy. sounds like a real moral booster.

But does this mean that you think the stock market has hit bottom or fairly close to it? Some say that we are headed for a recession (or already in one). I realize that people have been predicting this recession ever since the last one ended. But do you think the economy is turning South?

Where is all of this rhetoric about how we are headed for another Great Depression coming from? Is it just coming from people who see a similarity between the failure of large institutions such as Lehman and AIG with what happened during the Great Depression and fail to see the dissimilarities? An amazing number of free market types, including Larry Kudlow and Steve Forbes and Jack Kemp, seemed to have joined the "you must pass the Paulson plan or we are all doomed" coalition.


Scott Grannis said...

I personally fear the consequences of a triple D government. The best argument I could give anyone for voting for McCain is that we would be better served with a divided government than with a triple D government.

I agree that politics can have a huge influence on the economy. No question. That's why this is all so important.

I haven't talked about it here, but I have spent a lot of time and energy following the political and economic history of Latin America. There is no doubt in my mind that living standards there are low because of excessive government intervention in the economy, among other things (e.g., corruption).

Scott Grannis said...

In regards your second question: I have been arguing in the majority of my posts that the economy is not as bad as most people think. I think that is consistent with a view that the stock market is at or near a bottom. At this point it doesn't matter if we are in a recession or not, because the market has decided that we are.

The depression stuff is political posturing; the Dems need to paint an awful picture of the economy in order for their "change" mantra to make sense.

As for the Paulson bailout plan, I have been on the fence. I see that things are desperate in certain areas of the bond market, but I worry about moral hazard and the expansion of government that the bailout will entail.

The sad truth is that we have gotten ourselves into a royal mess, and when that happens there is simply no easy way out. That's why it's so important to always distrust big government programs in the beginning (e.g., Freddie and Fannie), because they inevitable lead to more big government programs down the line.

Tory Conservative said...

The worries about a Great Depression being in our future seems to be coming from Paulson and Bernake too, not just partisan Democrats trying to win elections.

But I tend to agree with your analysis: that we are too pessimistic.

Normally you would expect a Treasury secretary to look at "hard data" before getting panicked. But in this case, you see Paulson and Bernake and Steve Forbes and Jack Kemp as well, sounding fearful. Set aside the rhetoric coming from the Democrats.

Why the panic?

Scott Grannis said...

The panic comes from the side of the large financial institutions. Big money is terrified of banking collapses. Trading is almost paralyzed. No one wants to be stuck holding the paper of the next bank to go under. You can see the fear in the TED spread, swap spreads and implied volatility, all of which are at record all-time highs. It's hard to deny the problems are not extremely serious.

So what strikes me is the paradox this presents: a banking system that seems virtually paralyzed with fear, yet an economy that continues to function reasonably well. And the same banking system continues to make lots of loans.