Monthly Labor Review September 2004 49

A visual essay:

Post-recession trends

in nonfarm employment

and related economic indicators

• Real GDP

• Corporate profits

• Unemployment Insurance (UI) claims

• The help-wanted index

• Manpower Inc.'s employment outlook survey

• Consumer confidence (appraisal of current employment conditions)

• Federal income tax withholdings

David Langdon, Rachel Krantz, and Michael Strople

David Langdon is a supervisory economist and Michael Strople is an economist in the Division of Current

Employment Statistics, Bureau of Labor Statistics. Rachel Krantz is an economist in the Division of Labor

Force Statistics, Bureau of Labor Statistics.

E-mail:

Langdon.David@bls.gov

Strople.Michael@bls.gov

Krantz.Rachel@bls.gov
A Visual Essay

50 Monthly Labor Review September 2004

1. Percent change in real gross domestic product and quarterly change in

total nonfarm employment, seasonally adjusted

GDP annualized

percent change

Quarterly

employment change

(in thousands)

Employment

GDP

1980 82 84 86 88 90 92 94 96 98 2000 02 04

-1,000

-500

0

500

1,000

1,500

-10

-5

0

5

10

15

–

–

–

–

SOURCES: Bureau of Economic Analysis and BLS.

The economy entered a recovery in November 2001 following an 8-month recession, but the labormarket recovery began much later. Gross domestic product (GDP) and corporate profits had surged

before payroll employment reached its August 2003 trough. Employment edged up by about 60,000

a month during the remainder of the year. Gains averaged about 225,000 a month during the first 5

months of 2004 before slowing in the summer. The post-recession disconnect between overall economic

growth and the labor market was unusual. The following analysis reviews this apparent inconsistency,

and also identifies a number of other broad labor-market indicators that paralleled the lagged recovery in

payroll employment. Employment data used in this essay are from the Current Employment Statistics

(CES) survey, a monthly survey of about 160,000 businesses and government agencies, which represent

approximately 400,000 individual worksites. For more information on the CES, see BLS Handbook of

Methods, chapter 2, on the Internet at http://www.bls.gov/ces

During and following the recessions of the

early 1980s, the employment trend generally coincided with the trend in real GDP. In

contrast, sustained employment growth

lagged GDP growth by four quarters after the

1990–91 recession and by eight quarters after the 2001 recession. Overall, the downturn in employment associated with the 2001

recession was more prolonged than those associated with the recessions of the 1980s and

1990–91. (The National Bureau of Economic Research, the official arbiter of recessions, has designated these periods as recessions: January-July 1980, July 1981-November 1982, July 1990-March 1991, and

March-November 2001.)

The 1990–91 and 2001 recessions were

milder in terms of contracting GDP than those

of the early 1980s. During the 1981–82 recession, employment contracted by 3 percent, compared with a mild 1 percent during

the other three recessions since 1979.

Real GDP
 Monthly Labor Review September 2004 51

Corporate profits declined substantially

from the first to fourth quarter of 2001 and

then recovered quickly. A large part of this

swing is tied to the financial situation of

three industry groups: information technology (IT)-related manufacturing, information

industries, and transportation. (IT-related

manufacturers produce information technology products. They are classified in

computers and electronic products manufacturing [NAICS 334].) IT-related manufacturing and information industries felt the

impact of the bursting technology bubble,

whereas transportation was affected in part

by the aftermath of the September 11th terrorist attacks. Corporate profits excluding

those industries were much less volatile and

much more in keeping with prior recessions.

$

3. Total domestic pre-tax profits and total excluding computer and electronic products, information, and transportation and warehousing

Billions Billions

Domestic corporate profits,

excluding selected industries

Domestic corporate profits with inventory valuation adjustment

2001 2002 2003 2004

I II III IV I II III IV I II III IV I

450

500

550

600

650

700

750

450

500

550

600

650

700

750

SOURCES: Bureau of Economic Analysis and authors' calculations.

$

Historically, private employment and real

corporate profits behave similarly at the

end of a recession. Both reach a trough as

the recession ends and then recover

quickly. At the end of the 1990–91 recession, both profits and employment continued to move in parallel, but were lagged in

their recovery. The parallels broke down

with the 2001 recession.

Leading into the 2001 recession, growth of

corporate profits stalled and then exhibited

a relatively sharp and deep decline. Employment declined as well during the recession, but not as drastically as corporate

profits. Since reaching a trough in the third

quarter of 2001, corporate profits have increased by 56 percent. Employment, on the

other hand, remained essentially unchanged until late 2003. Rising productivity explains, at least in part, the divergence

in profits and employment.

2. After-tax profits in constant (2000) dollars and quarterly averages of

total private employment, seasonally adjusted

1948 52 56 60 64 68 72 76 80 84 88 92 96 2000 04

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

110,000

120,000

0

200

400

600

800

1,000

1,200

SOURCES: Bureau of Economic Analysis and BLS.

NOTE: Corporate profits were deflated using the Implicit price deflator for GDP, 2000 =

100. Shaded areas denote recessions.

$

Corporate profits

(in billions)

Employment

(in thousands)

Employment

Profits

Corporate profits
A Visual Essay

52 Monthly Labor Review September 2004

The difficult financial situation in computer and electronic products, information,

and transportation and warehousing resulted in cost-cutting initiatives that included numerous layoffs. As a percentage

of private employment, these three industries accounted for approximately 9 percent

of employment in the first quarter of 2001;

however, they accounted for approximately

41 percent of declines in private industry

employment through the third quarter of

2003.

The third quarter of 1997 showed a distinct

increase in labor costs per unit of real gross

value added, which coincided with falling

profits; this trend continued until the third

quarter of 2001. (These measures are produced by the Bureau of Economic Analysis.)

Over this timeframe, labor costs increased by

7 cents, while profits declined by 5 cents per

unit of value added. The rising labor costs coincided with strong private employment

growth, an average of 447,000 jobs a quarter.

This apparent tradeoff reversed itself in the

fourth quarter of 2001. Unit profits began to

increase, and unit labor costs decreased.

From the third quarter of 2001 to the third

quarter of 2003, profits per unit increased by

3 cents, while unit labor costs decreased by

2 cents. Private employment averaged declines of 288,000 per quarter over the same

timeframe. This drop in unit labor costs is

unusual, but is a way for firms to return to

profit when their pricing power is weak.

Price per unit of value added was flat between 2001 and 2003, so in order to increase

profits, businesses cut costs, including the reduction of labor costs through layoffs.

0.3

0.4

0.5

0.6

0.7

-0.2

-0.1

0

0.1

$0.70 0.2

.60

.50

.40

.30

5. After-tax profits and labor costs per unit of real gross value added of

nonfinancial domestic corporate business, seasonally adjusted

Labor

costs Profits

$0.20

.10

–.10

–.20

0

1980 82 84 86 88 90 92 94 96 98 2000 02 04

SOURCE: Bureau of Economic Analysis.

NOTE: Profits are after taxes, inventory valuation adjustment, and capital consumption adjustment. The series are deflated such that the price of one unit of gross value added in 2000 equals $1.

Labor costs

Profits

4. Quarterly employment changes in total private industries and total

private excluding selected industries, seasonally adjusted

SOURCES: BLS and authors' calculations.

Thousands Thousands

I II III IV I II III IV I II III IV I II

-1200

-1000

-800

-600

-400

-200

0

200

400

600

800

1000

-1200

-1000

-800

-600

-400

-200

0

200

400

600

800

1000

Total private

Total private excluding

Total private

Total private excluding

selected industries1

–

–

–

–

–

–

–

–

–

–

–

–

2001 2002 2003 2004

1 Excludes computers and electronic products, information, and transportation and

warehousing.

1,000 1,000

1,000

1,200 1,200

1,000

Corporate profits
 Monthly Labor Review September 2004 53

Initial UI claims and the over-the-month

change of total nonfarm employment measure the flow of workers. The former measures the flow of laid-off workers claiming

unemployment insurance compensation for

the first week following a layoff. The latter

measures the net flow of jobs onto payrolls.

Not surprisingly, these flows are negatively

correlated.

After the 2001 recession, initial UI claims

hovered around 400,000 monthly, a somewhat lower level than during prior recessions. Claims did not fall and remain below 400,000 until the fourth quarter of

2003, coinciding with the return to growth

in total nonfarm employment.

The labor market’s post-recovery stagnation is particularly evident in the continuing claims series. Like total nonfarm employment, continuing claims have tended

to reach a turning point at the end of a recession, with employment then rising and

claims declining. The pattern changed

somewhat in the 1990–91 recession, as the

drop in claims stalled between mid-1991

and mid-1992.

At the end of the 2001 recession, continuing claims reached 3.67 million, a plateau

that extended through mid-2003. They

did not decline steadily until September

2003, following the August trough in total nonfarm employment.

6. Monthly average of initial UI claims and monthly changes in total nonfarm employment, seasonally adjusted

Over-the-month

employment changes

(in thousands)

Number of

claims, inverse

scale

SOURCES: DOL Employment and Training Administration and BLS.

1980 82 84 86 88 90 92 94 96 98 2000 02 04

-750

-500

-250

0

250

500

750 100,000

200,000

300,000

400,000

500,000

600,000

700,000

–

–

–

Total nonfarm over-the-month change

Initial claims

NOTE: The August and September 1983 over-the-month changes, –300,000 and +1.1 million,

reflect a strike of 640,000 workers and their subsequent return.

Employment (in

thousands)

7. Monthly average of continuing UI claims and total nonfarm employment,

seasonally adjusted

1967 70 73 76 79 82 85 88 91 94 97 2000 03

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

60,000

80,000

100,000

120,000

140,000

Number of

claims

NOTE: Shaded areas denote recessions.

Continuing

claims

Employment

SOURCES: DOL Employment and Training Administration and BLS.

Unemployment Insurance (UI) claims
A Visual Essay

54 Monthly Labor Review September 2004

The help-wanted index measures monthly

help-wanted advertising volume in 51 major newspapers across the United States.

During the recessions of 1980, 1981–82,

and 1990–91, a downturn in help-wanted

advertising corresponded with job losses;

conversely, an upturn in help-wanted advertising coincided with job gains. Newspaper job advertising began its most recent

decline in 2000 and remained weak through

2003. Nonfarm payroll employment fell

from early 2001 until late 2003.

Interestingly, the magnitude of decline in

help-wanted advertising around the 2001

recession was more severe than the declines

of the early 1980s and 1990s. In recent

years, Internet-based job postings have become a popular method for employers to

advertise job openings; some employers

may substitute web-based postings for

newspaper advertising. The shape of the

help-wanted index indicates that newspaper job advertising notched up in early

2004, after showing little change in 2003.

This small uptick coincided with strong

gains in total nonfarm employment.

Manpower Inc.'s net employment outlook

measures the difference between the percent

of employers expecting to add jobs and

those expecting to shed them. Curiously, in

only one quarter since 1977 were there more

firms planning to decrease their staffing levels than firms planning to increase them.

Trends in the net employment outlook correlate highly with quarterly changes in total nonfarm employment. A one-quarter lag

in the employment outlook shows an even

higher correlation. Not surprisingly, employers may develop their outlook for the

upcoming quarter by looking at the one that

has just ended.

Like total nonfarm employment, Manpower Inc.'s employment outlook behaved

unusually after the 2001 recession. Although the outlook brightened somewhat

in 2002, corresponding with relatively

smaller declines in nonfarm employment,

it dimmed again in 2003. At the end of the

year and into early 2004, the outlook

showed greater improvement, and total

nonfarm employment began to recover.

1977 79 81 83 85 87 89 91 93 95 97 99 2001 03

-1,000

-500

0

500

1,000

1,500

2,000

-15

0

15

30

9. Net employment outlook and quarterly changes in total nonfarm

employment, seasonally adjusted

Quarterly employment

change (in thousands)

Net employment outlook

(percent)

– –

SOURCE: Manpower Inc. and BLS.

Net employment outlook

Quarterly change in total nonfarm employment –

8. The help-wanted index and monthly changes in total nonfarm employment, seasonally adjusted

Over-the-month

employment changes

(in thousands)

Helpwanted

index

SOURCES: The Conference Board and BLS.

1980 82 84 86 88 90 92 94 96 98 2000 02 04

-600

-400

-200

0

200

400

600

0

25

50

75

100

125

150

–

–

–

Employment

Help-wanted index

NOTE: The August and September 1983 over-the-month changes, –300,000 and +1.1 million,

reflect a strike of 640,000 workers and their subsequent return.

The help-wanted index

Manpower Inc. employment outlook survey
 Monthly Labor Review September 2004 55

A broader measure of consumer confidence

in the labor market would take into account

all people, not just those who see "plenty"

of jobs. Such a measure—a pseudo-diffusion index—can be calculated by weighting the proportion of people who respond

“plentiful” as 100, “not so plentiful” as 50,

and “hard to get” as 0, and summing the

results. This index highlights the growing

lag between the end of recessions and the

related labor market recovery. In 1982,

consumers noted a 1-month lag. After the

1990–91 recession came an 11-month lag,

followed by a somewhat fitful recovery;

consumers did not identify sustained labor

market improvement until mid-1992. The

lag following the 2001 recession was 22

months, as the diffusion index bottomed out

in September 2003. This pattern parallels

that seen in CES data; employment hit a low

in August 2003.

As part of the Conference Board’s monthly

survey of Consumer confidence, respondents evaluate current employment conditions, judging jobs as either “plentiful,”

“not so plentiful,” or “hard to get.” Focusing just on those who see “plenty” of jobs,

it is clear that the most recent economic recovery was not accompanied by an immediate improvement in the labor market. The

proportion of respondents finding jobs

plentiful recovered somewhat at the end of

the 2001 recession, only to decline again

during 2002 and through most of 2003.

During the final months of 2003, it began

to rise, coinciding with the first months of

steady, though slow, growth in total nonfarm employment. It is worth remembering that BLS data may condition the public’s

perception of labor market conditions, especially in the case of people who are not

actively looking, or know anyone actively

looking, for work.

11. Net appraisal of current employment conditions and monthly changes

in total nonfarm employment, seasonally adjusted

NOTE: The August and September 1983 over-the-month changes, –300,000 and +1.1 million,

reflect a strike of 640,000 workers and their subsequent return.

Over-the-month employment

change (in thousands)

SOURCE: Conference Board, BLS, and authors' calculations.

1978 80 82 84 86 88 90 92 94 96 98 2000 02 04

-750

-500

-250

0

250

500

750

20

30

40

50

60

70

80

–

–

–

Diffusion

index

Total nonfarm over-the-month change

"Diffusion index" of respondents' appraisal of current

employment conditions

10. "Jobs plentiful" and monthly changes in total nonfarm employment,

seasonally adjusted

Percent Over-the-month employment

change (in thousands)

1978 80 82 84 86 88 90 92 94 96 98 2000 02 04

-750

-500

-250

0

250

500

750

0

10

20

30

40

50

60

–

–

–

NOTE: The August and September 1983 over-the-month changes, –300,000 and +1.1 million,

reflect a strike of 640,000 workers and their subsequent return.

SOURCE: Conference Board and BLS.

Total nonfarm over-the-month change

"Jobs plentiful"

Consumer confidence (appraisal of current employment conditions)
A Visual Essay

56 Monthly Labor Review September 2004

12. Federal income tax withholdings and quarterly total nonfarm employment, seasonally adjusted Tax withholdings (in

billions)

Employment (in

thousands)

1988 90 92 94 96 98 2000 02 04

90,000

100,000

110,000

120,000

130,000

140,000

400

500

600

700

800

$900

SOURCES: Bureau of Economic Analysis, BLS, and authors' calculations.

NOTE: Quarterly withholdings data are not available for years prior to 1988. Federal personal

income tax withholdings were deflated using BEA's price index for Federal consumption expenditures and gross investment (2000 = 100). Shaded areas denote recessions.

Nonfarm

employment

Income tax

withholdings

Income tax withholdings

Federal income tax withholdings and nonfarm employment had similar trends during

the last two recessions. Both employment

and withholdings peaked as the recessions

began and reached low points after the recessions had ended. After the 1990–91 recession, there were no substantive job gains

until the second quarter of 1992, coincident

with a return to growth in income tax

withholdings. There are not yet sufficient

data to compare turning points in withholdings and employment for the period after the

2001 recession, although both data series

declined through the third quarter of 2003

and have since regained some of their recession-related losses. Income tax cuts enacted in 2001 and 2003 are also a factor in

the recent decline in withholdings.