Blood on the White Collars
If you think that the current slowdown in employment growth is about companies not hiring as quickly as they did in the winter, or a mis-measurement of the winter numbers, you are wrong.
Instead, looking very carefully at the numbers, what I find is that employment growth has slowed because of faster-than-expected increases in total private separations relative to steady increases in total private hires.
Put more simply, private-sector hiring continues to grow -- in fact, with remarkable steadiness. It is not the problem here. The problem here is a sharp and sustained increase in the number of fires, layoffs, and quits.
Notice in the graph below the steady, almost linear progress of private hires -- the red line -- in comparison to the sharp increase in the most recent data of private separations -- the blue line. (It is informative that the employment slowdown last year was also driven by separations.)Although some fraction of the increase in total separations consists of quits, since the start of 2012 there has been a sharp increase in the number of involuntary separations -- approximately 180,000 more per month, by my back-of-the-envelope calculations. To put the numbers in perspective, the 2.034 million involuntary separations is the highest since December 2009. While quits are usually interpreted as a positive economic sign, as employees must be confident and certain enough that they will find new employment, an increase in the aggregate numbers of involuntary separations is unambiguously a bad sign.Interestingly, the aggregate numbers do conceal something important. The increase in separations -- in quits as well as in firings and layoffs -- has been concentrated in the sector the BLS likes to call "professional and business services." In this sector, quits are up by 80,000, and involuntary separations by 130,000, since the start of 2012. In fact, as a statistical matter, the slowdown in employment growth is entirely explained by the increase in separations in this sector.
The graph below is a comparison of total separations and the separations number less professional and business services -- the resulting gap you see at the right end comes from separations in that sector. Notice its widening in the last few months.That should strike you as strange. Employees in "professional and business services" are white-collar workers -- in theory, they have relatively high skill levels, relatively high pay, and relatively secure employment. Had the increase in separations come from construction or manufacturing, I might have an appealing narrative to spin. Construction remains weak, with another rash of separations as builders consolidate further, or manufacturing reverses course after strong recovery, shedding workers in large numbers.
But I don't. I do not understand what is going on, and I have no tractable explanation for why employment professional and business services should be shrinking by six figures every month. I do know, however, that the conventional wisdom -- that the current slowdown in employment growth comes from weak hiring numbers or comes from seasonal adjustment -- is largely inaccurate.