Job Losses Appear to Peak, But When Will Hiring Start?
After a year and a half of declining payrolls, economists are more certain there will be modest job creation than either a "jobless recovery" or an outright jobs boom.
But when companies start hiring again is still open to debate.
The latest weekly jobless data Thursday—including a six-month low for the four-week average and a sizable drop in continuing claims—added fuel to the argument that the climb out of recession has been gaining momentum for months.
"There are signs the decline in unemployment is over," says David Resler, chief economist at Nomura International, reflecting the general view of half a dozen economists. "Sometime between now and the end of the year, we'll see the first positive increase in payrolls."
The closely watched initial weekly claims data have been shrinking since their late March peak of almost 700,000, and despite some confusion about seasonal effects in recent weeks, most economists say the trend has become more convincing. A marked slowdown in corporate layoffs — as measured by the monthly Challenger, Gray & Christmas report — is also considered a persuasive trend.
"At this stage every week you count past the peak in claims at the end of March, you should be on high alert for better-than-expected news on the economy," says Bank of Tokyo-Mitsubishi economist Chris Rupkey.
Rupkey is among those who cite historical data showing that the weekly jobless claims are a good leading indicator of the economic cycle. Jobless claims typically peak two months before the end of a recession.
"Based on the claims pattern, we're on track for an end of June end to the recession," chimes in FAO chief economist Robert Brusca. "We're going to continue to see progress and pretty good progress."
Look for that as early as next Friday, when the government reports nonfarm payroll and the unemployment rate for June.
Brusca and Resler say a 250,000 decline in payrolls is possible, which is well below the 333,000 consensus and a far cry from the 691,000 average of the first quarter. Meanwhile, Rupkey, who also thinks payrolls are likely to be better than expected, suspects the jobless rate — which is expected to climb from 9.5 percent in June to 9.6 percent in July — is around its peak.
The positive surprise in June data is likely to be followed by an actual gain in payrolls. Most economists say that is most likely to happen sometime between September and November. Brusca, for one, isn’t completely ruling out September, based on another historical pattern, which shows a tendency for a positive payroll number two months after a recession ends.
That was certainly not the case in the periods following the 1991 and 2001 recessions, which have — to varying degrees — been deemed jobless recoveries.
There's already been great debate about whether that trend will continue this time around, regardless of when the recession ends (the safe consensus is sometime in the late third-quarter.)
The key factor appears to be whether the thousands of jobs employers slashed with abandon in a hasty rush to cut costs following the economic shock of the Lehman Brothers failure will be added back to corporate payrolls.
"It makes me wonder if they overdid it," says Rupkey.
"We're seeing companies use temporary workers to fill short-term gaps where they've cut too deeply," says Bill DeMario, COO, of Ajilon Professional Staffing, a unit of Adecco. That's typicallyaleading indicator things are bottoming out and companies are positioning themselves for a recovery."
DeMario says there's been no stabilization in the direct-hire market yet, which typically lags the temporary worker one by a minimum of six months.
Proponents of the a job boom say the current recession—deep, long and nasty—closely resembles those of the 1970s and 1980s, whose recoveries pumped out jobs quickly and amply. For instance, payroll losses bottomed out one month after the recession of 1982 ended in November and were 3 million higher a year later.
"We wont have as much as a bounce as '82-'83, but we will have some bounce," says Resler who expects a "fairly quick uptick in employment" when the housing market has rebounded. rebounds.
Brusca is a firm believer in what he calls the "symmetry of the cycle", meaning big declines in GDP and payrolls are likely to be followed by similar increases.
"Companies could be tremendously profitable," he adds, referring to the spate of second-quarter earnings showing effective cost-cutting. "They may be very willing to bring workers back on board."
Former IMF chief economist Michael Mussa is also in that camp. "If we get the kind of recovery I am expecting in GDP growth, it will be reflected pretty rapidly in job creation," says Mussa, now with the Peterson Institute for International Economics.
Conference Board economist Ken Goldstein sees only "a small probability we will spring back. This is an artificial improvement. But for the stimulus, TARP and TALF, we wouldn't be in the shape we're in."
Goldstein is among those expecting modest job growth, at best. Even though he thinks the jobless rate may be close to a peak of about 10 percent, the rate will still be in the 6.5-percent range through 2012-2013.
Macroeconomic Advisors President Chris Vavares says the recovery will yield a relatively low economic growth rate—a little more than 3-percent at an annual rate—which means "hiring will be slow and there will be a relatively slow decline in the jobless rate."
His firm is forecasting an 8.7-percent unemployment rate by the end of 2011, following a peak of about 10 percent late this year.
That would certainly rival the painful recoveries of the past two decades. Though comparisons can be helpful, they can also be problematic.
"There's a lot of self-fulfilling prophecy in this," muses Rupkey. "I'm kind of worried that policymakers are saying it is going to be a long recovery and joblessness will be high and that doesn't encourage business to go out and hire people."