Slower Hiring, Not Layoffs,
Hurts Labor Market
The current weakening of the labor market reflects a slowdown in hiring — not the mass layoffs that have characterized past economic downturns.
The Labor Department said there were 1.8 million layoffs in December, about the same number as in December 2006 — despite the mounting turmoil in the meantime in the housing, mortgage and finance markets.
Andrew Tilton, senior economist at Goldman Sachs Group, said the absence of large-scale layoffs partly reflects companies' uncertainty about the economic environment and their determination, at least for now, to hang on to their skilled workers.
"It's really in finance and housing — and to some extent retail — where the pain is being felt most clearly," he said. "Many other sectors aren't feeling pressure [yet] to lay off workers [and] are hesitant to let them go if they'll need them back soon," should the economy recover, Mr. Tilton said.
Still, job creation is lagging. Most economists say 100,000 to 150,000 jobs need to be created each month to sustain economic growth. Since July, just 68,000 jobs on average have been created each month. In January, the economy lost 18,000 jobs, the first employment drop in 4½ years.
Still, that didn't come close to the job losses of past recessions — which typically have run 100,000 to 200,000 a month. And that has some economists scratching their heads.
"It would be odd to have a recession in an environment where there's not a lot of layoffs," said J.P. Morgan Chase economist Michael Feroli. "We're hanging in this no-man's land between recession and growth."
In the meantime, companies have hit the brakes on hiring new workers. The new government figures show there were 4.6 million new non-farm hires in December, after seasonal adjustment, down from a recent peak of 5.1 million in July 2006. There were just over four million job openings in December, down from 4.4 million the year before.
Goldman's Mr. Tilton said "underemployment" may be part of the puzzle. Workers like contractors and real-estate agents may still be employed but earning much less money now than they were at the height of the housing boom. That dynamic isn't captured in the statistics, but could help explain why consumer confidence is sinking and spending is slowing.
Paul D. Deng
Department of Economics
IBS, MS 032
Waltham, MA 02454