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Did Washington Save the Economy? Part 2

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Breaking down nonfarm payroll by core categories.

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Editor's Note: This is Part 2 in a 5-part series. Click here to read Part 1. Click here to read Part 3. Click here to read Part 4. Click here to read Part 5.


The American economy's capacity for job growth is far more limited than Wall Street understands and won't be ameliorated by either past or future money-printing spasms by the Fed. The truth of this proposition can be demonstrated by breaking the nonfarm payroll report into six core categories and then reviewing for each the peak-to-peak trend of job growth during the last seven-year Boom, along with possible rates of growth under the conditions likely to prevail during the business-expansion cycle now underway.

The first core category is "temporary help services" which posted 2.04 million jobs in the March report. The 126,000 job pick-up in this category during the first quarter has generated considerable excitement because it's allegedly a leading indicator of the overall job market. In fact, the headline number reported for this category undulates with short-term business conditions, and may therefore continue to reflect significant gains for several more quarters.

But the historical data also clearly show that these mostly part-time jobs turn over rapidly and that while some migrate to permanent statuses in other categories, most simply disappear. Moreover, the previous cycle established a pattern which appears to be underway again this time, and which suggests that any further rebound in temp jobs will be of marginal relevance, at best, to the broader employment picture. Specifically, as in the current cycle, there was an initial sharp contraction of temporary-help jobs, with the figure dropping by nearly 20%, from 2.6 million at the January 2000 peak to only 2.14 million at the recession bottom in December 2001. The temporary help job count then flat-lined at the recession bottom (2.14 million jobs) until April 2003. After that turning point, the category posted gains of 200,000 jobs (9%) in the first year of recovery through April 2004, and then a further 150,000 during the following 12 months. The category then gained still another 150,000 jobs over the following 16 months -- finally peaking at 2.66 million jobs in August 2006, and thereby returning to nearly the exact level at which it started.

So far the pattern is repeating. Between the December 2007 cycle peak and the September 2009 bottom for this category, the temporary-help count contracted by 800,000 jobs -- or at a 30% rate (compared to the 20% in 2000-2001). Since September, this category has rebounded by 300,000 jobs, including the 40,000 gain posted in March. This would suggest that 40% of the job loss has already been recovered; and that another 500,000 will be recalled over the next several years, if the temporary-help category follows the last cycles' script and eventually returns to the December 2007 starting level. Needless to say, such modest further gains wouldn't have much relevance to a "jobful" recovery. And there's also no reason to believe that "temporary-help services" will contribute any more to permanent job growth during this cycle than the zero peak-to-peak outcome last time. The temporary-help system most assuredly contributes to labor market flexibility and liquidity, especially at turning points in the cycle. But this efficiency function has virtually nothing to do with job or income growth on a sustained basis.

The second category, Core Government Operations, posted 11.37 million jobs in the March report, but it, too, exhibits discouraging trends and is almost certain to generate negative job growth over the next cycle. About 80% of the jobs here consist of state and local government payrolls for basic services such as fire, police, the license bureau, and public health inspectors. Because it excludes education, the postal service, and the temporary federal census job, it's about half the size of the "government" jobs segment reported by the BLS. But in this form the category better reflects its new underlying financial driver -- namely, the exhausted Government Fisc.
No positions in stocks mentioned.

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