Talk of volatility, or the lack thereof, is all the rage these days. Although the conversation mostly focuses on the stock market, the labor market has been quiet, too. That may be about to change, though gradually, as tends to be the case late in the cycle.
Initial jobless claims have been under 300,000 for 125 consecutive weeks, the longest stretch in more than 30 years. The story is similarly strong for those who have been collecting unemployment for more than one week: The 16-week run under the 2 million mark is also the most enduring since the early 1970s.
The persistence of this healthy streak can be measured in standard deviations, which gauge the dispersion of a data set from its average. The lower the standard deviation from the average, the lower the volatility and the less jobless claims jump around from week to week. Once pink slip activity picks up, volatility begins to build.
Because the claims data are weekly, economists tend to smooth out the bumpiness by averaging across a number of quarters. Although four quarters would seem to be an intuitive prism, examining five quarters effectively captures two decision-making cycles for companies. How they perceive labor costs vis-à-vis their operating environments tends to evolve over time as cycles age.
Companies have historically been considerate and deliberate when considering employee reductions. But in the current recovery, they have been even more cautious, holding on to their workers out of fear the so-called skills gap will prevent them from replacing those who leave.
So it should not be a surprise that a dearth of workers with the requisite skills to fill open positions has resulted in declining volatility in jobless claims. In fact, as the chart below shows, volatility has reached its lowest in postwar history. The question is, what’s next?
Economists are quick to point out that one-off events do not make for trends. Still, it would appear that claims are in the process of troughing for the current cycle. Both initial and continuing claims recently hit three-month highs. Although they’ve both pulled back slightly from those high points, subsequent corporate announcements suggest more layoffs are building in the pipeline.
While it may have been more violent than analysts had predicted, this year’s carnage in retail jobs came as no great surprise to many who knew this past holiday season would make or break a good number of brick-and-mortar retailers.
Dig into the monthly data released by Challenger, Gray & Christmas Inc., the outplacement consulting firm, and you will see that cost-cutting is the most cited reason for cutbacks these days. That hasn’t always been the case.
It has been an unusual recovery in many ways, including when it comes to the rationales for job cuts. Up until mid-2015, the bulk of companies ascribed reasons other than cost-cutting for paring their payrolls. Since then, though, cost cuts have risen to become the primary driver of announced layoffs. In two of the last four months, cost-cutting has been cited more than all other catalysts combined. That “other” category includes reasons such as closings — where retail presumably has the bulk of input — restructurings, mergers and acquisitions, declines in demand, and bankruptcies, among other reasons.
It may still be barely discernible, but the job market has begun to signal a turn.
Even if you discount the seemingly endless store closure headlines and those explaining how robots will displace workers, anecdotes from other industries validate the budding shift in claims. Companies from an array of industries, including many usual suspects from apparel to coal to newspapers to textiles, have begun to pare employee rolls in earnest once again. What is less typical, though, are the recent announcements from aerospace, automakers, the financial sector, health care and mega-cap technology firms.
It’s notable that energy companies are the most recent to join those tempering expectations. As the price of oil bounced to nearly twice its $26-a-barrel low, rigs began to come back on line, prompting companies to rebuild their depleted payrolls. The stalling in the oil price rebound, however, has snuffed out prospects for a sustained acceleration in hiring in the energy patch.
As for what’s to come, there are two emerging trends.
First, the right-sizing of higher education seems to have finally begun. Separately, there is a growing recognition that restaurants have indulged in footprint overexpansion. Quantifying the number of jobs at risk is beyond the reach of the forecasting abilities of all but the most astute analysts. Restaurants and other eateries employ 10.6 million U.S. workers today. That does not include those working at bars and “special food services,” such as caterers and food trucks.
Commercial construction also seems vulnerable given that financing has begun to tighten for new projects. Tack on the supply coming on line in retail and it’s difficult to foresee much in the way of demand for fresh construction outside the industrial sector, a reflection of the continued growth in e-commerce.
Jobless claims once provided a near real-time barometer of the forces pushing the economy. Today, investors hardly pay claims any heed. The time may have finally come to do so.
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