The Pace of Jobs Growth is Positive; The Composition of Jobs Growth is Concerning

The Pace of Jobs Growth is Positive; The Composition of Jobs Growth is Concerning

Last Friday (8/1/14) we received the most recent update on the nation’s job situation. The headlines highlighted that 208,000 jobs were added and how this was six consecutive months of job additions above 200,000. Clearly, the nation is steadily adding jobs and this is good news. Jobs create income and income is what drives consumer spending.

What the headlines did not highlight was the composition of jobs creation. Digging through the data regarding jobs growth reveals a pattern that bears watching. What the data shows is that since December of 2007 (the official start of the last recession) U.S. businesses have been reducing full time jobs while increasing part time jobs. This is concerning when you look at the trend that existed from the 1990’s to the end of 2007. Here are the facts from the Bureau of Labor Statistics:

From January 1990 until December 2007:

  • The U.S. added 22,459,000 full time jobs.
  • The U.S. added 4,601,000 part-time jobs.

From December 2007 until July 2014:

  • The U.S. eliminated 3,120,000 full-time jobs
  • The U.S. added 3,325,000 part-time jobs.

The increase in part-time employees could be tied to two macro scenarios:

  • Scenario 1:
    • Businesses remain uncertain about the economy, so they continue to use part-time employees to match the flow of their sales activity. If this is the correct scenario, then this is a cyclical change that should reverse if the economy and sales strengthen. The part-time positions should evolve into full time positions if this is a cyclical event.
  • Scenario 2:
    • Businesses have fundamentally changed their hiring methods due to the incentives in place. Currently, whether intentional or unintentional, businesses are incented to use part-time help since it allows them to manage their costs by reducing their expenses tied to employee benefits (especially health care). If this is the reason for the increase in part-time employees, then this is a structural change that may be slow to change if the economy improves.

There is no clear answer as to why this pattern has developed, but the reality is that, for most businesses, sales growth in this recovery has been slower than historical averages of previous recoveries. This can be seen each quarter in the sub-par revenue growth reported by businesses. On top of that, businesses have not been able to consistently pass on price increases to the consumer. If you add in increased costs for the new legislation that has been added since the recession, then costs need to be reduced somewhere else. The full-time versus part-time story may be the response from the business community.

As we get the employment reports each month, it will be important to not only monitor how many jobs are being created by what type of jobs are being created: full-time versus part-time.

About The Author

Steve Scranton is the Chief Investment Officer and Economist for Washington Trust Bank and is a CFA charter holder with over 30 years of investment experience with equities, tax-exempt and taxable fixed income securities. Steve actively participates on committees within the bank to help design strategies and policies related to client and bank owned investments. Steve also serves as the economist for the Bank and has been a featured speaker for both client and professional organization events throughout the Northwest.