US recession and US/UK average hours worked - wonk wonk

To continue on from the previous post about the UK economy, I thought I would see if the US economy was doing any better. Short non-wonky answer: no.

The official US unemployment rate rose last period to 9.5%. This is the highest official employment rate since 1983. You think that is bad? This ignores both underemployed people (ie people employed part time who want to work full time) and job seekers who have become so discouraged that they have given up looking for work. So exactly how deep and long is this recession? Calculated Risk have produced the following easy to read graph which I have copied to illustrate my next two points.















Depth of employment recession

The current US employment recession (red line) is the second deepest since WW2 in terms of recession from prior peak employment, with employment around 4.7% less than December 2007.

The only recession which went deeper was 1948 (navy blue line), and that recession rebounded back to prior peak employment in 22 months, so four months on from this point in time. I don’t know enough post WW2 US economic history to comment as to why the 1948 recession rebounded so quickly, but some kind of post war stimulus seems to be the answer here – maybe the Korean War and the start of the Cold War arms race.

If you look at the trajectory of the red line, there is no way this current recession is going to return to prior peak employment in the next four months, instead it will probably overtake the 1948 recession to become the deepest post WW2 recession.

Length of employment recession

The second thing which strikes me about this graph is the length of time which recent recessions have taken to return to prior peak employment. The 1990 recession (black line) took 30 months to return to prior peak employment, and the 2001 recession (brown line, popping of dot com bubble) took 46 months or just under four years to return to prior peak employment.

Economists describe this lag as a jobless recovery. The recovery is driven by productivity improvement or technological advancement rather than increases in number employed, which is basically the worst possible outcome for anyone remaining unemployed. GDP recovers and becomes positive again, so prices & rents begin to increase again, but the employment market still lags behind its prior peak employment.

Again, if you look at the trajectory of the red line, this current employment recession shows no signs of bottoming out any time soon, let alone returning to December 2007 levels. This current recession could outlast the 2001 in terms of length to become the longest post WW2 recession, but at this stage (18 months on from prior peak employment)

So how do you pick when an economy has bottomed out, and unemployment is about to abate?
One potential indicator is average hours worked. If companies want to increase their output at te end of a recession, their first response won't be to hire new staff in case the recession keeps going. Rather, the company will increase the hours worked by their existing staff.
So what is happening with US/UK average hours worked? Well, both the UK and UK governmental statistics bureaux have nice data mining interfaces, and the respective graphs for average hours worked over the period 1999 to date are as follows:



The US average hours worked isn't moving upward at all, so no pleasure here.





The UK average hours worked has curved up slightly, but it is only a movement from 36.6 hours in the three months finishing March 09 to 36.9 hours in the three months finishing May 09. I would call this statistical noise.



End of wonk.

Whoever said 'trust your gut instinct' didn't have my abdomen

Aargh, why is my gut instinct wrong in so many ways.

In a previous post, I had argued that
a) the dip in London employment caused by the current recession would be over by end of next year, and
b) the employment recovery in London would be driven by development from the Olympics and miscellaneous infrastructure works such as Crossrail.
Do you want to guess how my arguments stacked up against professional forecasters? That’s right, zero from two.

As part of my trains role I get access to forecasting data from Oxford Economics UK. I thought I would slice and dice this data to test my statements above.
Central London Employment for the period 2005-2018 according to OEF can be graphed below. (I haven’t quite worked out how to present graphs properly in Blogger, so excuse presentation formatting and double click on graph if too small.)

Peak employment occurred in the second quarter of 2008, and the trough of the recession will occur in the second quarter of 2011.
So my first argument, that the employment drop will bottom out by the end of 2010, is in error. Result.
One other thing to note is that employment will not return to peak 2008 levels until 2016, a lag of nearly eight years.

My second argument was that employment recovery in London will be driven by infrastructure development. If my argument is true, then we would see a surge in transport employment over the period 2008-2012, or possibly construction employment.
The graph below shows Central London Employment for selected industries, for the period 2004 to 2018. Both construction (dark green) and transport & communications (light green) are essentially static over the selected period. Thus my second argument is wrong too.
Business services (brown) rebounds to its 2008 peak by 2014, while financial services (blue) does not recover to its 2008 peak until after 2018. One of the only sectors which is recession proof is Health and education (orange), which is not too surprising.

Moral of the story: If you want to enter the financial services sector at any point in the next ten years, forget it and work in health or education instead.

So what drives the recovery? Business services.
If you look closely at this graph, you will see that I had to put Business Services on a secondary axis (y axis to 900k instead of 400k) to make the picture meaningful. Sure, London has other sectors, but Business Services provides 40% of Central London Employment so other sectors are far less important.

Now all I have to do is find a forecast of equivalent quality for New Zealand / Wellington to chew on.

Amaaaazing skills

Enjoy. I could try and explain how I came across the video above, but it gets a bit convoluted and involves a graffiti website I stumbled across while reading up on the new Hitachi 395 domestic high speed trains running out of St Pancras.

Someone in the bowels of the BBC has a sense of sarcasm

Just watching The Apprentice (BBC version). Don't judge me. Too much.

Anyway, one of the contestants just got introduced, with the gentle background theme music being Prodigy. Specifically, the intro to Smack My Bitch Up before the vocals kick in, so only 2% of the audience would have gotten the reference.

Ahahaha, this is up there with the time that TV3 used Shihad's Wait and See (below) as their theme song for one of their election night specials. Except better by a factor of infinity.



PS I should mention that the Prodigy music video is extremely Not Safe For Work, so don't go looking for it.

Man crush part two

I started a new job in Victoria yesterday, so an hour's walk from the NE side of central London to the SW side. This means I walk through Covent Garden at 8am as all the traders rouse themselves, good times.

Today Miracle Sun came on my phones as I was wandering along, and it just felt right.
I am not erudite enough to fully explain why, go read epicurean deal maker if you need to read something written by people who write smart, this Don McGlashan song just worked for me.
I have previously revealed my man crush so this is just more of the same.
Even so, I challenge you to listen to this and tell me I should prefer Dave Dobbyn.....

Adjusted NZ unemployment up to 5.0%

Image taken from Stats NZ Household Labour Force Survey March 2009

The bold line in the graph above shows New Zealand's seasonally adjusted unemployment rate. The big thing here is that unemployment has increased to 5.0% at March 09, up from 3.8% a year earlier.

This creates a strong incentive for Marie and I to stay in the UK for the new wee while, as the NZ recession is likely to outlast the UK recession. I can't provide a robust analysis backing this up, but a combination of Olympics regeneration efforts plus multi billion pound infrastructure investment means that the London economy should rebound reasonably soon (ie within the next year or so). Just so long as you don't work in banking, that industry might take a little longer. Plus I have an offer for a bells and whistles civil service perm job, go trains.

A secondary incentive for us to remain is the NZ housing market. I don't think the housing market bubble is anywhere near finished, but this stage I can't offer hard data, just conjecture and anecdotes.
It seems like the Wellington housing market is being artificially propped up by expatriates who have returned in the last year from overseas with mortgage deposits.
This influx of solvent buyers willing to purchase at current market prices has propped up house sale prices.
However the numbers of expatriates is not unlimited, so soon there will be a reduced number of buyers returning from overseas.
Thus the Wellington housing market will soon face a fall in buyer demand, so prices will soften.

Someone with more knowledge states that the propping up of NZ house prices from returning expatriates is a myth, with migration flows strongest from India, the Phillipines and South Africa. He forecasts an increase in unemployment to 8% and a dramatic fall in house prices.

So there you have it. A pessimistic summary of the 300 words above is that there are no jobs and a housing implosion waiting to happen in New Zealand. An alternate viewpoint is that we should wait out the NZ recession from the far side of the world, and engage in some cultural tourism while we are here.
On that note, we are off to Jersey this weekend to watch Eurovision in the only gay bar on the island, preceded by a live appearance by Nikki French - one of Britain's all time worst Eurovision entries. Good times.