A New Way to Picture the Job Market Recovery
Recently I got into a two-hour argument at the Four Seasons bar in Baltimore.
My opponent was Aaron Brabham, co-host of Stansberry Radio. Our conversation could have made for good radio… even though the other patrons at the bar didn’t seem to want to listen in.
The topic that night: Whether or not the U.S. job market was recovering.
I argued the unemployment rate had dropped to 7.8%. Aaron countered that the labor force participation rate had hit new lows.
I’d say that initial unemployment claims continued falling. He’d argue that discouraged workers were finding low-paying or part-time jobs.
Of course, we could quote all the numbers we wanted. The trouble is, no single number can quantify the complexities of the job market – or most economic measures, for that matter.
Take the common complaint over inflation statistics. The most reported inflation number doesn’t include energy and food prices. Critics call this number worthless. No one knows a consumer who doesn’t use energy or food.
That’s not fair, though. If you’re trying to determine how policy can affect inflation, it’s not reasonable to consider food and energy, which could fluctuate based on outside influences like the weather. Both inflation measures are valuable and necessary.
Ultimately, you need a mosaic of details on inflation to determine what’s really going on. Unfortunately, the attention span of casual observers usually only makes room for one detail at a time.
The same goes for the job market. The unemployment rate doesn’t tell you everything, but it tells you a lot of important things. The same goes for payroll numbers, hiring plans, jobless claims and more.
Fortunately, the research arm of the Atlanta Federal Reserve has put together a new type of chart that should help visualize exactly what’s going on in this job market recovery.
It’s a spider chart, so it looks complex. But if you take a minute to learn what’s going on, you’ll have an understanding of the job market that’s leaps and bounds ahead of your drinking buddy.
You could consider this first one a “blank chart,” in that it doesn’t include any current data.
You can see that each quadrant shows a different way to measure the labor markets. You can measure actual employer behavior, such as hires and payroll numbers. You can use confidence measures, such as higher plans and the number of people quitting jobs. You can measure the actual utilization rates, like unemployment rates and workers who are underemployed. Finally, you can look at the leading indicators – such as initial unemployment claims and temp services – that may portent a shift in the employment market.
Any recovery may be stronger or weaker in any of those areas. And knowing how they interact reveals a lot about the strengths and weaknesses of the economy.
The second thing to notice on this chart is the baseline settings. The small blue circle in the middle represents the levels for each statistic at the bottom of the job market. The Fed has chosen the fourth quarter of 2009.
The outer red line shows the levels during the healthy economy of 2007. So as the job market recovers, the current ratings would move from the center (the depths of the recession in blue) toward the healthy economy on the outside (in red).
Now this chart shows the job market as of December 2012:
This gives us an idea of where the recovery is succeeding and where it’s stalling.
As you can see, we still have too many people working part time. The rate of people finding a job is slow. The worst statistic is “marginally attached workers,” which measures unemployed people who weren’t counted in the unemployment rate because they hadn’t looked for a new job recently.
Note that all of these stubborn statistics are in the “utilization” category.
On the other hand, the “leading indicators” indicate that a recovery is in the works. Initial jobless claims are declining and employers are having trouble filling some open positions.
Finally, the actions of employers (blue section) and the confidence they show for the future (purple section) are roughly halfway back to the levels of a strong economy.
Overall, this chart supports the idea that many parts of the economy are doing well. But there’s a certain set of workers that are having great difficulty replacing the jobs they lost during the recession.
A more optimistic view comes from the next chart that shows the lines from 2010, 2011, and 2012 on the same chart:
This shows the job market making progress each year. Last year, the only area that regressed was hiring plans.
Bottom line: A simple visualization can provide much more context than a single number. Certain areas are struggling. Even so, these figures support cautious optimism. The leading indicators are nearly fully recovered… Hopefully they’ll pull the rest of the market with them.
Now I’ll just print these out and take them to the bar with me for next time…
Ahead of the tape,