This week we take a look at the Challenger job cut announcements for the Energy sector and for non-Energy (i.e. the rest of economy).
Job cut announcements in energy in January and February surged, rising to 20k and 16k, respectively, up from a run rate of 0-3k/month. While this is an enormous jump for energy layoffs, the rest of the economy seems to be doing okay.
Energy jobs account for around 60 bps of employment nationally and slightly more than that (~1%) when weighted for their higher average earnings. An offset, however, is that lower energy prices are marginally benefiting every family in America that drives a car. Once again, concentrated harm meets diffuse benefit.
Here's some context for Energy's role in the broader labor market:
Oil Sector Employment: The BLS catalogues oil & gas related employment within four major subsectors: Oil and Gas Extraction, Oil & Gas Pipeline Construction, Support Activities for Oil & Gas Operation and Mining/Oil/Gas field Machinery.
- Share of Total: Collectively, BLS estimates these industries employed 780K people as of November 2014. Relative to Total Nonfarm employment of 140MM, those most directly employed in Oil and Gas extraction represent 0.6% of the NFP labor force.
- Growth From Trough: Relative to the NFP employment trough in February 2010, Oil and Gas related employment is up +274K – a remarkable 54%. This compares to growth of +8.1% for total NFP employment over the same period. Further, Oil related employment gains represent 2.6% of the total increase in employment since trough (274K of 10.4MM total increase in employment) – certainly an outsized contribution relative to its share of total employment.
At just 60 bps of Nonfarm employment, even if the oil and gas sector were cut in half (along the lines of what's happened to the price of oil), it would only have modest repurcussions on the labor force at the national level (~30 bps). That said, energy jobs tend to pay better than non-energy jobs. For instance, the Oil & Gas Extraction sector, according to the BLS, pays an average of $40.59/hour. This compares with $24.57 for the average private sector job, a premium of 65%. In other words, every energy job equates to roughly 1 and 2/3 non-energy jobs from an income-weighted standpoint.
Taking a look at state-by-state announced layoffs, Texas tops the charts at 42.5k YTD. For context, there have been 103k announced layoffs YTD nationally, so Texas accounts for 41% of those, whereas Texas only accounts for 8.5% of the US population. Even so, Texas' total nonfarm employment is 11.8 million, so 42.5k / 11.8mn = 36 bps. While 36 bps isn't enough to get excited about, if this rate of layoffs continues for several more months then Texas will begin to have an employment problem.
Turning to initial jobless claims, last week was another week of slowing improvement in the labor market. Year-over-year change in NSA claims decelerated to -9.2% from -12.1%. Meanwhile, rolling SA claims rose from 295k to 305k.
Joshua Steiner, CFA
Jonathan Casteleyn, CFA, CMT