In his morning note, David Rosenberg warns of more economic bloodletting ahead.
The article in yesterday’s WSJ titled Specter of Layoffs Stalks Wall Street really resonated with us. As we said in yesterday’s note, the size of the securitized loan market has shrunk 60% in the past two years. Balance sheets, production, order books and staffing requirements are all rightsizing to this new semi- permanent landscape of reduced credit availability.
In fact, we could see a situation where another 4 to 5 million jobs could be shed in the United States — and in the three sectors that were, and remain, the most affected by the housing crisis and financial collapse.
For example, historically, the construction industry employed three workers for every housing start. Today, that ratio is closer to 10. This could easily mean that we see 3 to 4 million construction jobs being lost going forward, barring a major revival in the housing market, which isn’t happening.
The ratio of employees in the financial sector to outstanding private sector credit is at a new and lower level that would warrant around a workforce 500,000 lower than is the case today — just to get to productivity ratios that prevailed in the pre-bubble era. And the third sector, which is the fiscally-challenged state and local government segment, for payrolls there to mean revert to the level commensurate with the ever-declining level of public spending would also mean roughly 500,000 employment cutbacks. No doubt there are other sectors that will provide some offset in health and education and even manufacturing, but it took 25 years for these areas combined to rise five million and something tells us that the downsizing that is left in the housing, financial and state/local government sectors will occur in a much shorter period (and the latter too, if what happened recently in New Jersey is any indication, the social contract with public sector unions will soon go the way of the dodo bird).”
Note that the year-on-year trend in layoff announcements, after a brief period of declines, is now re-accelerating in the three above-mentioned affected sectors. For the first time since late 2007, the financial sector posted no hiring announcements in each of the last two months and this has also been the case in three of the past four months in the real estate sector. Government sector hiring announcements, as an aside, have plunged 75% from year-ago levels. The signs are already there — get ready for another downleg in employment as the jobless claims are now suggesting — especially as it pertains to this 33 million or 25% chunk of the total workforce.
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