America's Struggling Jobless

There is an interesting employment metric that is rarely discussed; job losers not on layoff as a percentage of total unemployed.

Here is a graph from FRED showing how this metric has improved since the end of the Great Recession in June 2009:

At its post-recession peak, 54 percent of unemployed Americans that had lost their jobs had not been laid off.  This has dropped substantially over the last four years to its current level of 42.5 percent, a decrease of 11.5 percentage points or 21.3 percent.  There is no doubt that the selected statistics show that the health of the jobs market in America has improved markedly.

As I'm prone to do, to help us put the present into historical context, here is a look at the longer term data going all the way back to 1967:

You can clearly see that, while the current improvement is substantial, the percentage of unemployed American workers that are not on layoff is still at very elevated levels.

Over the 46 year period, the average percentage of unemployed workers that were not on layoff was only 36.6 percent, 5.9 percentage points lower than the current rate.  In fact, out of the 563 data points in the FRED database, the current level is the 80th worst on record.  Not surprisingly, the worst level in the past 46 years of 54 percent was reached in November 2011, the post-Great Recession peak that I noted above.

As well, we should note that since the late 1960s and in particular since the recession of 2001, the percentage of job losers that are not on layoff has been rising.  Back in the 1960s, generally less than 30 percent of unemployed Americans were job losers  that had not been laid off.  This has steadily risen; in fact, the last time that the rate was below 30 percent was in June 2000 when the rate dropped below 30 percent for a very short period of time, hitting a low of 26.2 percent.

What does all of this mean?  According to Richard Butler, the author of the "Economics of Social Insurance and Employee Benefits", job losers that are not on layoff find themselves in that unenviable position because of structural changes in the economy.  These workers have little hope of regaining their lost jobs.  This can be compared to job losers who are on layoff; these workers expect their unemployment to be of relatively short duration and anticipate that they will be called back to work at some point in the near future.

To summarize, perhaps a graph from FRED can explain how severe the problem still is for a great number of the jobless in America:

Four and a half years into this "recovery" and there are still 3.329 million Americans that have permanently lost their jobs, up 132.1 percent from a pre-Great Recession low of 1.434 million and more that triple the roughly 1 million Americans who had permanently lost their jobs at the turn of the new millennium.

Perhaps this data explains why there is such a dichotomy in the American economy today.  Millions of permanently dismissed workers have an overwhelming sense of helplessness and hopelessness as they come to the grim realization that their jobs are gone forever.

Cutting Jobs At American Companies

While at least some facets of headline unemployment data have shown improvement in recent months, pressures from Europe are beginning to work their magic on United States-based employers.  This pressures are making it more and more difficult for the unemployment rate to head lower as we have seen in October's 7.9 percent rate.  A recent release by Challenger, Gray and Christmas shows how job cuts are starting to impact American companies and how Europe is involved.

In the month of October, U.S.-based employers planned to cut 47,724 jobs, an increase of 41 percent over the previous month when job cuts of only 33,816 were planned.  October's planned cuts are the highest since the month of May when 61,887 layoffs were announced.  Looking back one year, this October's cuts are up 12 percent on a year-over-year basis.  Reasons given for most of  this October's job cuts are related to either restructuring (15,016 job cuts), closing (16,381 job cuts) and a downturn in demand (4,867 job cuts).

Through the first ten months of 2012, a total of 433,725 layoffs were announced, down 17 percent from the same ten months last year.  Just in case you wondered, during all of 2009, there were 1,288,030 job cuts at American companies; this dropped to 529,973 in 2010, rising back to 606,082 in 2011.  

Which three sectors are leading the surge in layoffs?  Here they are in order:

1.) Automotive: This sector announced plans to layoff 11,615 workers, more than the total for the previous nine months of 2012.  So far this year, the automotive sector has cut 22,020 workers, double the number of job cuts in this sector for all of 2011.  The bulk of the cuts were at Ford Motor's plant in Belgium (9500 workers) and the United Kingdom (1400 workers) directly related to Europe's economic crisis.

2.) Consumer Products: This sector announced plans to lay off 5250 workers in October, up from only 1917 in September.

3.) Electronics Industry: This sector announced plans to lay off 4491 workers.

Here are the top five sectors in order of the number of layoffs in the first ten months of 2012 and a comparison to the number of layoffs in 2011:

Layoffs in the computer industry are up a whopping 238 percent on a year-over-year basis and transportation has seen a year-over-year increase of 176 percent.  On the flip side, education has seen the number of laid-off workers drop by just under 40 percent on a year-over-year basis.

Just for fun, let's look at the number of job openings according to FRED:

In August 2012, there were 3.561 million job openings, just below the post-Great Recession high of 3.741 million seen in March 2012.  This is up nicely from the recessional low of 2.186 million in July 2009 but is still well below the 4.0 to 4.7 million range in the three years prior to the Great Recession.  This shows us that it is not a given that replacement jobs will be waiting for workers that are laid off in the United States.

While the a significant rise in the number of layoffs at U.S.-based companies are being experienced by employees that are located at overseas subsidiaries, it shows that American companies are becoming increasingly vulnerable to the "European Influenza".  Other major American companies with global operations are also noting that weakness in Europe is translating to poorer than expected quarterly earnings, including DuPont, Colgate-Palmolive and Dow Chemical.

As the European debt problems lurch from crisis to crisis, it will be interesting to see how much of an impact there is on American workers as the seemingly never-ending issue works its way through the world's interconnected economy.

Layoffs - What the Monthly U3 Data Doesn't Tell Us

Over the past two months, the combination of declines in the U3 unemployment rate, increases in the ADP employment numbers and a drop in new claims for unemployment (aka jobless claims) has some in the mainstream media touting that the end of the Great Recession is in sight.  That could well be but fortunately, the Bureau of Labor Statistics (BLS) provides us with even more data to chew on, namely, the rather frighteningly entitled "Mass Layoffs" news release.  This report seems to get very little coverage in the mainstream media but for those of us that have gone through periods of what is politely and innocuously termed "downsizing", the mere threat of a layoff is enough to cause various bodily sphincters to clench involuntarily.

For January, 2011, according to the BLS, there were 1534 mass layoff actions (seasonally adjusted) in that month alone involving 149,799 workers with each of the 1534 layoff actions involved at least 50 workers from a single employer.  When compared back one month to December 2010, the number of mass layoffs rose by 51 events and the number of initial claims increased by 11,807.

Here is a graph showing both the number of mass layoffs for the past 5 years and the number of initial claimants for the past 5 years, both seasonally adjusted:

Quite clearly, the number of mass layoffs has decreased by roughly 50 percent from its peak in early 2009 but you'll notice quite quickly that the number of layoffs has not decreased markedly over the past year (once again, despite the looming and ever-promised end to the Great Recession) and that the number is still elevated by about 40 to 50 percent from the period of time prior to the onset of the Great Recession.  That's some recovery, isn't it?

The numbers look even worse when they aren't put into the magical black box that seasonally adjusts data.  For January 2011, the number of mass layoff events was 2558 (a 66.8 percent increase over the seasonally adjusted number) and the number of newly minted redundant employees was 246,463 (a 64.5 percent increase over the seasonally adjusted number).  On a year-over-year basis (non-seasonally adjusted), compared to January 2010, the number of mass layoffs was down by 302 and the number of initial claimants was down by 32,216.

Here is a chart showing the distribution of new claimants by industry for the top 10 worst offenders:

The manufacturing sector in the United States is still suffering mightily.  Despite the length of the recession and the increase in consumer spending, manufacturing layoffs still accounted for 27 percent of all mass layoff events and 30 percent of initial claimants.  This is slightly down from last years 34 percent of events and 38 percent of initial claimants.  The hardest hit sectors of manufacturing were in transportation equipment and food.  That’s not a terrible surprise – well, maybe the food industry was a bit unexpected.

Geographically, the highest number of initial claims were found in California, New York and Pennsylvania.  Interestingly enough, the de-industrialized belt experienced the largest year-over-year decreases in initial claims - that means you Michigan, Ohio and Illinois.  Perhaps job cuts over the past decades have already pretty much decimated the employment pool in those areas.

As seems to be a rule of thumb for all things economic, there is more than one source of data and more than one way to present that data.  Here is another reference for layoff data provided by Challenger, Grey & Christmas, Inc., an executive outplacement company headquartered in Chicago.  This week, they released their planned layoffs data showing that employers planned to increase their job cutting to 50,702 in February 2011, the highest total since March 2010 and the second month in a row that increased layoffs were planned.  The job cuts for February were up 32 percent from January's 38,519 and 20 percent higher than the 42,090 planned for the month of February 2010.  This is the first year-over-year increase in monthly job cuts since May 2009, during the height of the Great Recession.

The largest portion of layoffs in February came from local and state government and non-profit employers which announced job cuts totalling 16,380 positions, up 196 percent year-over-year.  On top  of local and state level cuts, the United States Postal Service announced that it has cut 5600 positions.  Despite data showing that consumers are cracking open their wallets once again, the retail sector is coming off second worst with a planned increase in job cuts of 44 percent to 8360 in the month of February, up from 5755 in January.

The Challenger, Grey & Christmas report shows that year-to-date layoffs for the first two months of 2011 have been the worst in Michigan (8985 workers), California (7150 workers), Illinois (6122 workers) and the District of Columbia (5946 workers).

The layoff situation is only going to get worse as we move forward.  Two factors are working against American workers; the first factor is rapidly rising energy and commodity input costs which, in large part, cannot be passed along to indebted and under water consumers necessitating cuts in operating costs (i.e. layoffs) to maintain profitability.  The second factor working against American workers are the looming job cuts at the Federal level in the never-ending (or never-starting) battle to balance the budget deficit.  his will have a marked impact on the economy as a whole since mass layoffs result directly in less consumer spending which result in even further layoffs in the private sector.

This thing just never seems to end despite what some of the data says, does it?  To my untrained eye, it certainly doesn't look like the employment situation in the U.S. is going to return to historical norms any time soon.