October Economic Advisory Note

The October employment situation report and a number of other economic news releases of late provide reasons for cautious optimism about the direction if not the pace of recovery in demand for the economy in general and property and casualty insurance in particular.

Employment:

·         Over 150,000 new jobs were added in October – the fastest rate of job growth of the year, factoring out the distortions of Census hiring in earlier months.

·         While a more robust recovery would mean sustained monthly job growth in the range of 250-350k per month, the 150k jobs added to payrolls in October was more than double the average for the first nine months of the year.

·         Growth in the 150k/month range is just about sufficient to absorb new entrants to the labor force at the usual rate of labor force growth.

·         If the demand for labor continues to increase, expect the unemployment rate to rise before it falls, as unemployed workers restart job searches, many of them for the first time in years.

Payrolls:

·         In nominal terms payrolls have returned to exactly the level as 2007. Factoring inflation, payrolls are still well below the 2007 level .

·         Sector differences are substantial:

o   Healthcare and education payrolls are the most significant classes of business (NAICS 61 & 62) leading the pack out of the recession, with payrolls 14 percent above 2007 – or about 8 percent higher in real terms.

o   On the flip-side, construction payrolls are still only 80 percent of the 2007 level. With the enormous excess of residential and commercial property on the market (or being intentionally withheld from the market), don’t expect a turn around there any time soon.

·         Key recovery belle-weathers continue to show steady improvement year-over-year:

o   Employment placement/Executive Search payrolls – growing at a 14 percent pace over the same quarter last year

o   Temporary help services payrolls – growing at a 21 percent pace

o   Professional Employer Organizations – growing at a 5 percent pace

Overall, a pretty good jobs report. With any luck, another 2-3 months of jobs growth at or above the October level will mark the beginning end of flat / shrinking payroll exposures. Though negative risks remain, most prominently the Congressional move to fiscal austerity before the recovery truly takes hold, this is the best news on the economic front in several months.