16 Monthly Labor Review December 2005

Securities Industry Securities Industry

Bears, bulls, and brokers: employment

trends in the securities industry

Employment in the securities industry

strongly correlates with stock market value;

however, market volume does not exhibit the same relationship

with the employment cycle

Michael H. Strople

Michael H. Strople

is an economist

formerly in the

Division of Current

Employment

Statistics and

currently in the

Electronic Data

Interchange

Center in the

Chicago Office of

Field Operations,

Bureau of Labor

Statistics.

E-mail:

strople.michael@

bls.gov

Over the past several years, Americans have

dramatically increased the amount of personal savings held in equities. This phenomenon, together with a general shifting of savings from interest-bearing deposits and bonds to

individual stocks and mutual funds, has peaked

awareness in investing. A pronounced shift from

defined-benefit retirement plans to employeefunded plans has placed workers’ retirement nest

eggs more directly in the stock markets.1 The ebbs

and flows of the stock market generate much attention from individual investors. However, these

cycles also have a direct impact on workers in the

securities industry.

As measured by the Current Employment Statistics survey, employment in securities, commodities contracts, and investments appears to be

highly cyclical, rising and falling much like the

markets themselves. 2 The industry experienced

modest job declines during the 1990–91 recession, rebounded during the expansion of the mid1990s into 2000, declined once again with the

2001 recession, then rebounded in late 2003. This

article examines whether the higher participation

in the stock market (measured by stock market

volume) or stock values (measured by stock

prices) have influenced the employment cycle.

Brokers: securities industry employment

Since January 1990, there have been two periods

of sustained employment weakness in the securities industry—1990–91 and early 2001 through

October 2003. Both of these time periods coincided with or followed economy-wide recessions,

reflecting the general parallel between cycles in

the securities industry and the business cycle.

The recession of the early 1990s, which the

National Bureau of Economic Research (NBER)

designated as lasting from July 1990 to March

1991, was mild in terms of job losses in the securities industry.3

 From the February 1990 employment peak to the February 1991 trough, the industry lost a modest 9,000 jobs, and then employment

remained rather stagnant. By January 1992, employment had returned to its prerecession peak.

So, while losses were mild over the recessionary

period, the initial recovery was tepid at best.

After slow growth early in the recovery, employment in the securities industry experienced

robust growth. From the employment trough in

February 1991 (when the index was 98.2) to the

March 2001 peak (when the index was 183.2), the

industry gained more than 390,000 jobs, a nearly

87-percent increase. (See chart 1.) Over the same

period, nonfarm employment increased by 22 percent. However, the growth rate in the securities

industry was not evenly distributed across years.

From 1992 to 1994, employment increased by an

annualized 6.8 percent; in 1995, job growth slowed

to 1.5 percent, while from 1995 to the employment

peak in March 2001, growth accelerated to an annualized 7.8 percent.

The 1990’s trend of strong employment growth
Monthly Labor Review December 2005 17

differed considerably from the securities industry’s experience after March 2001. Employment peaked in March 2001

and, by the trough in October 2003, the industry had shed

93,000 jobs, an 11-percent decrease. Like nonfarm employment, the securities industry’s employment drop from peak

to trough (31 months) lasted significantly longer than the 8-

month recession. A series of factors in 2000 and 2001 exacerbated the impact of the economic downturn on the securities industry. First, the run-up in stock prices during the bull

markets of the late 1990s led to fear that stocks were overvalued. This condition, also known as an asset-price bubble,

had a clear impact on stock markets.4

 Within 1 year of its

February 2000 peak, the bubble burst as the NASDAQ Index

declined by more than 50 percent. The Standards & Poor’s

500 Index (S&P 500) suffered a 25-percent decline over a similar timeframe. The September 11, 2001, terrorist attacks,

which resulted in the short-term closure of the New York

Stock Exchange (NYSE), added momentum to markets already

in decline. Lastly, several scandals shook investor confidence. Ranging from corporate governance to stock-broker

ethics, investors were bombarded with bad news on a seemingly daily basis. While the impact of these events is difficult to quantify, they all likely played a role in the stock market declines, which led to large job losses.

Since reaching an employment trough in October 2003,

securities employment has grown at an annualized 3.6 percent, and the industry has replenished about one-third of

the jobs lost during the recessionary and postrecessionary

periods.

Bears and bulls: market value and employment

Employment in the securities industry shows a strong correlation with stock market indices, that is, with the market

value. The S&P 500 has a broad industry representation and

“is usually considered the benchmark of U.S. equity performance.”5

 As a result, it is used most extensively in the following analysis. The NASDAQ Index has strong technology and

financial industry representation, which is useful when considering the technology stock bubble and troubles within the

financial industries themselves. 6 The value per share traded

on the NYSE, which is one of the largest securities markets in

the world, captures both market activity and value .

7

 Value

per share traded is defined as the quotient of total trade value

to total trades. The Dow Jones Industrial Average was omitted from this analysis, as it reflects the valuation of a small

number of very large companies.

Market value affects employment in the securities indus1990 91 92 93 94 95 96 97 98 99 2000 01 02 03 04 05

80

100

120

140

160

180

200

80

100

120

140

160

180

200

Chart 1. Indexed total nonfarm and securities employment, seasonally adjusted

NOTE: January 1990 equals 100. Shaded areas represent recession.

Index Index

Securities employment

Nonfarm employment
 18 Monthly Labor Review December 2005

Securities Industry

try indirectly by means of corporate profits. As stock value

increases, securities firms’ profits typically increase, which

often results in additional hiring. For example, in 2003, the

markets experienced sharp increases in the S&P 500 Index and

value per share traded on the NYSE. The strength in the markets coincided with widely reported strength in net earnings

at brokerage firms. 8

The S&P 500 and securities employment are directly correlated. Since 1990, employment trends lagged trends in market value by an average of 7 months. Six distinct periods in

the S&P 500 Index are followed by similar periods in employment, both in direction and duration. (See chart 2 and table 1.)

The relationship of employment to the value per share

traded on the NYSE is similar to that of the S&P 500. As value

per share increased in the mid-1990s, employment followed.

(See chart 3.) In April 1998, value per share peaked, and

remained fairly constant until April 2000. Then, the value

per share series dropped drastically. Employment losses

lagged the drop in share value by 11 months. Value per share

traded on the NYSE plummeted to a low in February 2003

then rebounded somewhat. The trough and eventual rise of

share value preceded the employment trough and subsequent

start of recovery by 8 months.

The relationship between the NASDAQ Index and securities

employment is not as consistent as employment’s relationship with the S&P 500 Index. The S&P 500 has more comprehensive industry representation and, in turn, is relatively consistent in predicting changing trends in employment. While

the NASDAQ also leads employment changes, the lead time

varies perhaps because of the NASDAQ’s concentration in technology and financial stocks. For example, in February 1995,

growth in the NASDAQ began to accelerate, with the subsequent acceleration in employment growth lagging by about 7

months. (See chart 4.) The NASDAQ peaked in February 2000,

preceding the employment peak by 13 months. When the

Chart 2. Employment in securities, commodity contracts, and investments and the S&P 500, 1990–2005

SOURCE: BLS and S&P 500 monthly close.

Employment in thousands,

seasonally adjusted

S&P 500

Stock Index

S&P 500

Employment

1990 91 92 93 94 95 96 97 98 99 2000 01 02 03 04 05

300

400

500

600

700

800

900

0

200

400

600

800

1,000

1,200

1,400

1,600

Table 1. S&P 500 Index and employment in the securities

industry

January 1990 ........... 10 months January 1990 ........... 17 months

November 1990 ....... 39 months June 1991 ................ 37 months

February 1994 ......... 11 months July 1994 ................. 14 months

January 1995 ........... 68 months September 1995 ...... 67 months

September 2000 ...... 30 months April 2001 ................ 30 months

March 2003 .............. 28 months October 2003 ........... 21 months

Points

of inflection

Points

of inflection

Duration

of trend

Duration

of trend

S&P 500 Index Employment
Monthly Labor Review December 2005 19

Chart 3. Employment in securities brokers versus value per share traded on the NYSE

SOURCE: BLS and the NYSE.

Employment in thousands,

seasonally adjusted

Value

per share

1990 91 92 93 94 95 96 97 98 99 2000 01 02 03 04 05

300

400

500

600

700

800

900

20

25

30

35

40

45

50

Value per share traded

Employment

Chart 4. Employment in securities, contracts, and investments and the NASDAQ, 1990–2004

SOURCE: BLS and NASDAQ monthly close.

Employment in thousands,

seasonally adjusted

NASDAQ

Stock Index

1990 91 92 93 94 95 96 97 98 99 2000 01 02 03 04 05

300

400

500

600

700

800

900

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Employment

NASDAQ
 20 Monthly Labor Review December 2005

Securities Industry

NASDAQ reached a trough in September 2002, the employment series continued downward for another 13 months.

Trade volume

The volume of stock market activity and securities broker

employment presumably would seem highly correlated. That

is, high trade and share volume would increase the workload

for brokers and dealers and thus spur hiring. Yet, an analysis

of trends in share volume on the NYSE and NASDAQ, and in

total trades executed on the NYSE, fails to show a clear predictive relationship between trade volume and employment

since 1990.

Share volume (on the NYSE) captures the total number of

shares traded each day. Employment and share volume both

increased throughout the 1990s and into 2001. As employment peaked in March 2001, share volume continued to grow

and then flattened out somewhat in late 2001. (See chart 5.)

At first glance, the two series appear highly correlated in the

1990s, with employment leading a slowdown in the volume

series. However, the correlation breaks down around the

2001 recession. This apparent lack of correlation does not

mean employment and market activity are unrelated. It is

likely that volume can have an underlying influence on hiring.

Average daily trades data show the average monthly activity on the NYSE as measured by trade executions, as opposed to the total number of shares traded. This series is less

volatile than the share volume series and provides a different

perspective on stock market activity. Like employment, average daily trades rose throughout the 1990s. (See chart 6.)

Yet, after securities employment peaked in 2001, average

daily trades continued to grow. Much like share volume, the

average daily trades series flattened out somewhat in 2002

and 2003, coinciding with declining employment. Nonetheless, the weak correlation between securities employment and

average daily trades through the 2001 recession suggests that

they are not closely related. One potential explanation is

that security trading became much more efficient in the late

1990s thanks to information technology advances. Another

possible explanation is that the trading was increasingly performed by day traders, not payroll employees of securities

firms. Day traders are essentially self-employed; therefore,

their work falls out of the scope of the Current Employment

Statistics survey.

Individual investors became much more active in the stock

market during the 1990s. The day trading phenomenon,

whether as full-time work or simply “recreational” buying

and trading stocks online, soared during the late 1990s. 9 In a

Chart 5. Securities employment versus share volume

SOURCE: BLS and the NYSE.

Employment in thousands,

seasonally adjusted

Share volume,

millions

1990 91 92 93 94 95 96 97 98 99 2000 01 02 03 04 05

300

400

500

600

700

800

900

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Employment

Share volume
Monthly Labor Review December 2005 21

special study conducted by the Securities and Exchange Commission (SEC), the number of full-time day traders was estimated at less than 7,000; however, considerably more investors use the Internet to participate part-time in day trading or

to execute trades. As a whole, day-trading activity was estimated to have added as much as 15 percent to the NASDAQ’s

daily volume.10 Furthermore, during the 1990s, individuals

gained more direct control over retirement savings as many

firms moved from defined-benefit pensions to defined-contribution plans, such as 401k and similar type retirement accounts. These two phenomena may have contributed to increased market activity without leading to payroll employment growth in the securities industry.

Another phenomenon that possibly boosted the trading

volume is a general shift in personal savings. From 1989 to

2001, there was a net decrease in interest-bearing savings,

while over the same time period, a net increase in the amount

of savings allocated to individual stocks and mutual funds.11

(See table 2.)

This shift in stock market participation was widespread.

From 1992 to 2001, direct and indirect stock ownership increased by 15.2 percentage points across all families, and by

2001, more than 50 percent of all families owned stock either directly or indirectly. While higher income families continued to have a greater proportion of stock owners, there

was a double-digit increase in ownership in all families but

the poorest 20 percent, whose stock ownership rose 5.1 percentage points between 1992 and 2001. 12 In short, during

the 1990s, personal investment in the stock market increased

rapidly. Day trading, easy access to stock markets via the

Internet, greater participation in 401k and similar accounts,

and a general shift of personal savings to equities helped

boost volume substantially. Advancements in technology and

investment in these technologies has allowed firms to handle

this surge in volume without necessarily having to add jobs

to payrolls. 13

EMPLOYMENT IN THE SECURITIES INDUSTRY has shown a strong

correlation with stock market value, particularly the S&P 500.

Turns in market value have consistently led turns in employment, and the rates of growth have also been relatively

similar, as strong increases (decreases) in value were followed by strong increases (decreases) in employment. The

same cannot be said about market volume. Volume increased rapidly during the mid-1990s and into the recession. Day trading and more people exerting direct control

over retirement savings likely account for part of the rapid

growth. Despite high trading volumes, market value fell

through the recession and beyond, and securities employment fell with it.

Chart 6. Securities employment versus average daily trades

SOURCE: BLS and the NYSE.

Employment in thousands,

seasonally adjusted

Average

daily trades

Employment

Average daily trades

1990 91 92 93 94 95 96 97 98 99 2000 01 02 03 04 05

300

400

500

600

700

800

900

0

750

1,500

2,250

3,000

3,750

4,500

5,250
 22 Monthly Labor Review December 2005

Securities Industry

Notes

1 1998 Survey of Consumer Finances and 2001 Survey of Consumer

Finances (Federal Reserve Board) on the Internet at http://www.federal

reserve.gov/pubs/oss/oss2scfindex.html (visited December 12, 2005).

2

 Data on employment used in this article are from the Current Employment Statistics (CES) program, which surveys 160,000 nonfarm businesses representing about 400,000 establishments monthly. For more information on the program’s concepts and methodology, see BLS Handbook of Methods, on the Internet at http://www.bls.gov/ces/ (visited August 5, 2005). The employment series used in this article begins in 1990

and is seasonally adjusted. The term “securities industry” is used interchangeably with 2002 North American Industry Classification System

code 523, Securities, Commodity Contracts, and Other Financial Investments and Related Activities.

3

 For more information on recessions, recoveries, the National Bureau

of Economic Research Business Cycle Dating Committee, and related topics, see the National Bureau of Economic Research website, on the Internet

at http://www.nber.org/cycles/main.html (visited December 12, 2005).

4

 Federal Reserve Governor Ben S. Barnanke, “Asset Price ‘Bubbles’

and Monetary Policy,” Remarks presented before the New York Chapter

of the National Association for Business Economics, New York, New York,

October 15, 2002, on the Internet at http://www.federalreserve.gov/

boarddocs/speeches/2002/20021015/default.htm (visited December 2,

2005).

5

 “The Motley Fool Index Center: S&P 500 Index,” The Motley Fool, on

the Internet at http://www.fool.com/school/indices/sp500.htm (visited

December 12, 2005).

6

 “Nasdaq Composite Index: Composition,” Street Authority.com, on

Table 2. Percent distribution of financial assets of all families, by type of asset, 1989, 1992, 1995, 1998, and 2001

Type of financial asset 1989 1992 1995 1998 2001

Total ................................................ 100.0 100.0 100.0 100.0 100.0 –

Transaction accounts ........................... 19.1 17.5 13.9 11.4 11.5 –7.6

Certificates of deposit .......................... 10.2 8.0 5.6 4.3 3.1 –7.1

Savings bonds ..................................... 1.5 1.1 1.3 .7 .7 –.8

Bonds ................................................... 10.2 8.4 6.3 4.3 4.6 –5.6

Stocks .................................................. 15.0 16.5 15.6 22.7 21.6 6.6

Mutual funds (excluding

money market funds) ......................... 5.3 7.6 12.7 12.4 12.2 6.9

Retirement accounts ............................ 21.5 25.7 28.1 27.6 28.4 6.9

Cash value of life insurance ................ 6.0 5.9 7.2 6.4 5.3 –.7

Other managed assets ........................ 6.6 5.4 5.9 8.6 10.6 4.0

Other .................................................... 4.8 3.8 3.3 1.7 1.9 –2.9

SOURCE: Survey of Consumer Finances, Federal Reserve Board, 2001 and 1998, and author’s calculations.

Net change,

1989–2001

the Internet at http://www.streetauthority.com/terms/index/nasdaq

composite.asp (visited December 12, 2005).

7

 “About the New York Stock Exchange: Overview,” NYSE, New York

Stock Exchange, on the Internet at http://www.nyse.com/about/

1088808971270.html (visited December 12, 2005).

8

 “Letter to Shareholders and Clients: Financial Highlights,” Merrill

Lynch 2003 Annual Report, on the Internet at http://www.ml.com/

annualmeetingmaterials/2003/ar/letter2.asp (visited December 12,

2005); “Financial Highlights,” The Goldman Sachs 2003 Annual Report,

on the Internet at http://www.gs.com/our_firm/investor_relations/

financial_reports/annual_reports/2003/pdf/GS03AR_complete

financials.pdf (visited December 12, 2005); The Bear Stearns Companies Inc. 2003 Annual Report, on the Internet at http://www.

bearstearns.com/bear/bsportal/Info.do?left=Investor%20Relations&

top=SEC%20Filings&sub=sec_edgar (visited December 12, 2005).

9

 Michael Meyer, “Rolling the dice with a click of the mouse,”

Newsweek, Aug 9, 1999, p. 30.

10 “Day Trading in Context,” Special Study: Report of Examinations

of Day-Trading Broker Dealers, Part III, A (Office of Compliance Inspections and Examinations, U.S. Securities and Exchange Commission, Feb.

25, 2000), on the Internet at http://www.sec.gov/news/studies/

daytrading.htm (visited November 10, 2004).

11 1998 and 2001 Survey of Consumer Finances, on the Internet at

http://www.federalreserve.gov/pubs/oss/oss2/scfindex.html.

12 Ibid.

13 Career Guide to Industries, 2004–05 Edition, Bulletin 2571 (Bureau of Labor Statistics, March 2004).