There have been some positive signs in the labor market in recent weeks despite persistent fears over imminent recession and global economic slow-down. While it would certainly be a stretch to say that the jobs market is set for a big boom, it’s becoming clear what’s NOT happening – the labor market is not currently forecasting any sort of major economic slow-down or collapse. This is crystal clear from a few of the more time sensitive indicators.

Temporary help services, a leading indicator of the labor market and economic contraction, have remained in steady expansion mode into the month of November:

Initial claims, which we see on a weekly basis, are in a clear downtrend:

Out of the 7 recessions since 1965 none has been preceded by initial claims above 305K.  This represents the enormous slack in the economy.  Another way of thinking about this is sort of like claiming that a boxer can get knocked down when he’s already flat on his back.  There is so much slack in the economy currently that a new recession would be the equivalent of literally getting knocked out again while being flat on your back.  Not impossible I guess, but unusual to say the least:

The most bullish jobs data point in recent months is probably the NFIB small business survey.  Their November survey showed renewed optimism in SALES.  As regulars know, the balance sheet recession is all about end demand.  Why?  Because sales are all about demand and increased demand leads to increased revenues which leads to corporate hiring.  As I’ve recently highlighted, the #1 concern keeping businesses from hiring is not regulation or taxes or uncertainty.  It is sales!

Small businesses are the most important component of the labor market and the weakness in small business has been crucial to the weak labor market.  The latest survey showed the highest level of optimism regarding hiring since the recession began in 2008.  It’s not surprising that expected sales are surging while hiring plans are increasing:

I don’t want to blow things out of proportion here, but this data points to one clear conclusion – the labor market is most certainly not collapsing.  And while it requires a huge amount of jobs improvement to close the output gap and bring down the real rate of unemployment (a boom that’s not likely given the continuing balance sheet recession), it’s clear that the time sensitive indicators are pointing to improvement in the labor market.  Baby steps….

Update – Reader Kyle notes that the 82 recession did indeed begin with claims at an unusually high level.  Sorry for overlooking this.  So I guess I should have stated that the odds of recession, given that only 1 of the 7 has started with this much slack in the labor market, is not great odds, but HAS most certainly occurred before….


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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • ES

    I think people got used to the “new normal” and are starting to spend again. But I would wait until after hoilidays to count the chickens. Stores hired a lot of people for the holiday season and promotions are very agressive. The tide will go out after the holidays and then we’ll see the true picture.

  • Calvin

    Nice set of positive data points, Cullen and I certainly don’t want to entirely dismiss them, but a couple of counter points:

    1) “Out of the 7 recessions since 1965 none has been preceded by initial claims above 305K. This represents the enormous slack in the economy. Another way of thinking about this is sort of like claiming that a boxer can get knocked down when he’s already flat on his back.”

    I think we should view this one within the context of this “Great Recession” being different in that employment never recovered much from the 2008-2009 collapse so in the boxer analogy he never got back up, so if he gets hit again he won’t fall much, yes, but on the ground he will be, no question.

    2) The Gallup employment survey clearly shows a distortion vs. the improving BLS data and the last several times that happened BLS survey turns out to be wrong and fell in-line with the Gallup data.

    Just something to keep in mind.

  • Fund of Funs


    My thought is that since there is a skew towards greater job demand than job supply, new jobs are probably at a lower salary than before. I imagine that savings will continue to build up very slowly as new hires pay of existing debt burdens with a lower income base and this will continue to create tepid growth over the next year. I’ll be curious to see if there’s any information to support new hires being offered less than the historical norm for the respective position.

  • JJTV

    The labor force participation rate went from 65.5 to 64.0 between 1/09 and 10/11 (the largest portion of the drop started in 2009). Part of the reason claims have been dropping is because large parts of the unemployed have left the workforce completely and it wasn’t to get a college degree. New college graduates, including those with hard science and engineering degrees, are having difficulty obtaining jobs. I think a better interpretation is that the labor market has not improved, nor is it showing signs of traction/improvement, however, it is not indicating mass layoffs (stagnant). I think claims will spike after the holiday season and a larger % of umemployed will have been out of work for more than 99 weeks.

  • JCR

    I agree. I hate to say “this time is different” but we’ve had so many six sigma events in the last three years that I hate to see quotes of historical norms etc.

    Also if employment is defined as a warm body working there may be improvement. However wages are a disaster. I know several seasoned professionals that normally bill out(prerecession) between +100/hour are grovelling for 50/hour – and glad to get the work.

  • Kyle J Hipp

    I think one interesting statistic on this is the population trends. The baby boomers, a huge group, are entering retirement years. Then there are lower numbers in the middle age groups until the 18-30 age groups which also represents a huge group. This dynamic which shape a lot of the economic factors in play. One could see a lowering in unemployment from these retirements and job replacements by the younger generation. This could lead to money being moved out of stocks by retirees but also money moved in by newly employed 18-30 year olds. Also a shift to bonds or income stocks. As another benefit an increase in demand with retirees adjusting to new lifestyles and younger folks being able to support themselves with stable jobs. Household debt levels should be able to stabilize by this transformation. Hopefully the 18-30 age group in which many stayed in college longer to delay employment will be able to fill the skill gap from retirees.

    This is a optimistic view and will come slowly but is definately something to look at and see some hope for.

  • curlydan

    Can’t argue with your trends, but one headwind has been and should continue to be govt sector employment. The govt sector been knocking down the BLS non-farm numbers and probably will continue to do so in 2012.

  • Tom

    So I have a question…

    One the balance sheet recession starts to fade away, should we expect so much pent-up demand that we should expect a big boom? It seems that if people are saving now and paying down debts, once things are rosy again, the economy should take off?

  • David

    “Another way of thinking about this is sort of like claiming that a boxer can get knocked down when he’s already flat on his back”

    Unless we are in an MMA fight in which case we could get knocked out while already being knocked down…..

    I do find these trends encouraging. Locally in FL things are slooowwwwly picking up, but this whole housing thing really is a drag. There is just too much inventory and that is hampering new production which is hampering a lot of other things. At least it is forcing us to diversify.

  • adsanalytics

    Other positive signs abound – residential construction jobs are growing, average and workweek have bounced higher and NFIB hiring plans are strong (see chart).

    ADS Analytics

  • Leverage

    Yes, doing great:


  • Leverage
  • Kyle F

    Apologies for being dimwitted, and not to troll at all – but, I don’t understand the Initial Claims chart and “a recession since ’65 never having been preceded by claims above 305k” bit. The chart seems to indicate the after the brief recession in early 80’s, the 82′ recession was preceded by claims around the 400k level.

    I’ve stared at the chart for 10 minutes trying to get it, so any help there by anyone would be appreciated.

  • rhp

    I’m suspect of this wonderful trend continuing. The austerity meme had not started to bite from 2008 until sometime this spring (IMO), which is what has allowed transfer payments to continue to help US “muddle through”. The bubble of credit monies was still supporting EM and Asian markets for our products. Now, the austerity meme is coming on strong, which promises to put a major drag on economies in eurozone, US, and ?China? Job market HAS to follow aggregate demand. Do you really think you’re going to extrapolate increasing aggregate demand given the austerity headwinds??

    Starting to lag in with my short positions (against equities)

  • brent


  • Cullen Roche

    You’re right Kyle. I made a mistake. There has been one….Sorry about that. Not sure how I overlooked it. Well, 1 out of 7 is pretty bad odds, right? Hmmm….

  • quark

    While i would like to believe this is sustainable consumer debt again is fueling this holiday season. Coincidentaly we have hirings for seasoning reasons at the same time more people are dropping out of the workforc…i prefer to wait til february t make a wager.

    We are cheering housing starts..really, we need more houses??? Seems to me we the banks have plenty of houses on their books and we are building more. This is not a sign of hope in a sustainable recovery it it Einsteins definition of insanity.

  • brent

    I’m reading both 1980’s and the 1990 all having mid-high 300k prior to recession? I have a feeling I’m reading thing differently Cullen (so excuse me if I’m barking up the wrong tree) but to me all 3 seem clearly above the stated level.

  • perpetual neophyte

    I have read it argued that the employment/population ratio might be a more useful data point in determining resource slack. That number was 64.4 in Jan-2001, fell to 62.0 in Sep-2003 before topping out at 63.4 in Dec-2006. The most recent trough looks to have been 58.1 in Jul-2011. Since then, it has increaseed each month through Nov-2011.

    As Cullen likes to point out, though, it’s harder to imagine a big drop when you are already at such a low point. :-/

  • Kyle F

    I think the point is that in 6 of the 7 last recessions, between the end of one recession and the beginning of another initial claims reverted back to the 305K level or lower before resuming another trend upward – thus signifying additional weakness in the labor market.