MarketStance Economist Corner: Insurance Implications of the Employment Report for March 2010

Today's employment situation release again provides reason for cautious optimism in payroll exposure growth rates. First the optimism: employment is growing ,not shrinking, even when you factor out the gains in temporary Census hiring of about 60,000 jobs last month and this month (+114,000). To boot, the revisions of January and February employment were slightly positive -- more jobs were added than first reported.

Now the cautionary notes. For a sustained let alone robust recovery, the private sector would need to add on the order of 250,000 jobs per month -- 150,000 jobs are necessary just to keep pace with trend growth in the labor force. The US economy is still well below that rate of net job creation. The fact that much of the employment growth in the last six months has come from temporary hiring, both Census and private sector, reflects the nascent -- read potentially reversible -- nature of the recovery. Job growth will likely be structurally constrained for years, because so many workers from hard-hit construction and manufacturing occupations are poorly matched to the jobs that will be created in the recovery. Millions are saddled with houses that are 20-30 percent or more underwater. Moving for that new job someplace else means accepting a large financial hit that many will simply refuse to take.

A recovery in dismal worker's comp trends will be stalled until aggregate payroll exposures show marked improvement. Unfortunately, there the story is even more muted than with the nascent employment growth. The index of weekly payrolls, which factors both hours and hourly pay for all private sector works, remains well below the 2007 level, with preliminary 2010 numbers showing a decline in payroll exposures between January and February, and then a slight rise between February and March. Basically, payroll exposures are bouncing right around the bottom reached in 2009, with little sign of recovery as of yet.

On another note, personal auto exposures, at least as reflected by new light vehicle sales, are showing some signs of life, but this is wildly overblown in recent news reports. Yes auto sales are gaining, but relative to what? Recall that Spring 2009 saw a relative cessation of auto sales, in part due to credit crises and bankruptcy proceedings, so the comparison year over year dominating the headlines is quite misleading. Taking the longer view, March 2010 light vehicle sales (11.8 million), while trending up due to Toyota-led incentive programs, remain at historically depressed levels, though off the lows.

Workers / consumers by and large are still scared. Until they become a lot less so, these core exposures will remain a drag on growth in written premium.

Now the cautionary notes. For a sustained let alone robust recovery, the private sector would need to add on the order of 250,000 jobs per month -- 150,000 jobs are necessary just to keep pace with trend growth in the labor force. The US economy is still well below that rate of net job creation. The fact that much of the employment growth in the last six months has come from temporary hiring, both Census and private sector, reflects the nascent -- read potentially reversible -- nature of the recovery.


Job growth will likely be structurally constrained and unemployment high for years, because so many workers from hard-hit construction and manufacturing occupations are poorly matched to the jobs that will be created in the recovery. Millions are saddled with houses that are 20-30 percent or more underwater. Moving for that new job someplace else means accepting a large financial hit that many will simply refuse to take.

In at least one way this recession is quite unlike any other since the Depression, with long-term unemployment (>27 weeks) running double the rate it has at any time since (hat-tip Calculated Risk).