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Patiently Waiting For Jobs


To nobody's surprise the Federal Reserve left its target for federal funds at 1%. Additionally, it Fed maintained that "it can be patient in removing its policy accommodation." There were only two changes in the statement from the Federal Reserve compared to the January statement. The first was a slight change stating that "output is continuing to expand at a solid pace," compared to "expanding briskly." This appears to suggest more tepid growth. Secondary and more importantly, was the comments regarding the labor market. Two months ago, the Fed painted an optimistic scenario by saying, "Although new hiring remains subdued, other indicators suggest an improvement in the labor market." The Fed seems more downbeat now. It said that "Although job losses have slowed, new hiring has lagged." It is debatable if Greenspan really wants a boom in jobs, it would void the reason interest rates have remained at historic lows.

Trying to predict when payrolls will increase has been a very daunting exercise of late. I have been listening to economists trying to forecasts when employment will start picking up. One of the favorite that economists seem to always focus on is the notion that the average number of hours worked during the week precedes an increase in hiring. The theory sounds goods. Managers would rather have existing employees work longer hours instead of incurring the cost of hiring additional workers. Unfortunately this has not been the case during the last recessions. When nonfarm payrolls increased following the three previous recessions, the number of hours in the average work week rose in conjunction not preceding.

Shown below are three tables showing the average weekly hours and total nonfarm payrolls (in millions).

  1/75 2/75 3/75 4/75 5/75 6/75 7/75 8/75
Hours 36.1 35.9 35.7 35.8 35.9 35.9 35.9 36.1
Payrolls 77.3 76.9 76.6 76.5 76.6 76.5 76.8 77.2
  7/82 8/82 9/82 10/82 11/82 12/82 1/83 2/83
Hours 34.8 34.7 34.8 34.6 34.6 34.7 34.8 34.5
Payrolls 89.5 89.4 89.2 88.9 88.8 88.8 89.0 88.9
  2/91 3/91 4/91 5/91 6/91 7/91 8/91 9/91
Hours 34.1 34 34 34 34.1 34.1 34.1 34.1
Payrolls 108.7 108.5 108.3 108.2 108.3 108.2 108.3 108.3

It is interesting to note that the average workweek has fallen dramatically since the 1960's. Bloomberg maintains data back to 1964 and in 1965 the average workweek reached the highest level that Bloomberg maintains at 38.8 hours. There was a protracted decline until 1991 when it hit 34 hours. From 1991 to the beginning of 1998 the average workweek increased to 34.6 hours. The next five to six years saw a resumption of the long-term trend and the average workweek fell to 33.6 hours in April 2003. Since then it has bounced between 33.6 and 33.8. Economists have been quick to point to the increase in the manufacturing workweek. Since July 2003, it has increased steadily from 40.1 to 41.0 hours in February 2004. This trend is explained by the shift in manufacturing jobs to service sector jobs.

Even more bizarre is that economists watch manufacturing jobs closely. The manufacturing sector of the US economy has long been gutted and there is little value in analyzing what the employment conditions are within the manufacturing sector. According to the latest Employment Situation report, there are only 21.7 million goods producing jobs in the country. This compares to 108.5 million service sector jobs, which includes 21.6 million government positions. One item of interest from the February employment report was that it was the first month that showed a year-over-year improvement in jobs since June 2001.

Perhaps it is best to look at anecdotal evidence. While not perfect, the ISM surveys'employment sub-index started showing expansion during the middle to late part of 2003. This is about the same time that nonfarm payrolls started to increase. Manpower released the results from its second quarter Employment Outlook Survey this week. It showed that U.S. employers are more likely to adding jobs. Twenty-eight percent of employers surveyed anticipate adding workers in the second quarter while only 6% plan on reducing their staff. The resulting 22% net employment outlook is the highest since the fourth quarter of 2000. On a seasonally adjusted basis the outlook for the second quarter is the best since the first quarter of 2001. These were also almost double the levels a year ago. Additionally, each of the ten sectors showed improvement. Construction was by far the most optimistic sector with 42% planning to add workers and only 4% reducing workers. In fact, the outlook for construction jobs has not been better since the late 1970s. Education was the weakest sector with 15% anticipating adding and 8% reducing workers. The optimism is was widespread geographically as well. Every geographic sector reported the best outlook since the first quarter of 2001. Internationally, the US only lagged Canada and New Zealand in expectations.

The CEO of Monster.com, Jeffery Taylor, was interviewed by Bloomberg last week. He said he is seeing "broad support" in job placement postings. He specifically mentioned posting of positions in sales, software, general IT and consulting were up. Yahoo! reported that more companies have been posting advertisements for jobs on its Hotjobs site. On Tuesday, New York Time Co. announced that its earnings would fall short of analysts' forecasts. Interestingly, the company noted strength in help-wanted advertising in all three of its newspaper groups: New York Times, New England (Boston Globe) and it Regional Newspaper Group. Tribune also said February help wanted advertising increased from the year ago period. Gannett, publisher of USA Today, reported that employment advertising increased 18.6% in February from the year ago period. This follows a 4% increase in December and a 9% increase in January.

During the late stages of the boom the labor market was extremely tight and companies were hiring workers anticipating continued expansion. When the economy contracted, companies had to shed not only the additional workers hired for the future expansion, but had to reduce their staff for the lower level of business activity. In order to see rapid job growth, managers will want to make sure that the recovery has traction before committing to increase expenses. After all, it was not too long ago that companies were firing workers. I doubt companies will not do an about face based on two quarters worth of data, especially after hearing about the "second half recovery" in each of the past three years. When payrolls start increasing, will Greenspan allow rates to go back up or will there be a new focus that will require more patience.

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