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Employment Data Shows Trend Changes

Data indicates bottom of the recession in employment may have occurred in December.

Employment data over the past three months indicates that the bottom of the recession in employment may have occurred in December. The two most important factors considered by the National Bureau of Economic Research (NBER) for dating recessions are GDP and unemployment. GDP turned positive in the third quarter and employment appears to have turned up in January. That puts a bracket on the likely date for the official end to the Great Recession in the interval from July, 2009 to January, 2010.

Total Employment

The following graph shows the behavior of employment as reported by the Department of Labor (DOL) over the past 15 months.

There is a clear indication that employment bottomed in December. We can learn more by looking at component data, which is done in the following sections.

Part-Time Employment

When jobs become more plentiful the numbers of people who work part-time tend to decrease as the numbers of full-time jobs increase. Although not yet declining, total part-time employment is showing a broad peak starting about nine months ago, as shown in the following graph.

The most economically sensitive part-time employment is the category labeled "part-time for economic reasons". These are people working part-time because their employer has cut their hours to 34 hours or less per week or who want full-time work but could only find part-time. My personally preferred terms for this category are "involuntary" part-time and "forced" part-time.

The graph below shows that involuntary part-time employment, although more volatile than the total part-time data, is also clearly indicating a topping pattern. In this case, the pattern has been developing for over a year.

Full-Time Employment

Full-time employment numbers are showing a clear trend change. An up trend is beginning, as shown in the following graph.

What is so encouraging about this development is that full-time employment is growing before part-time employment has completed a top. With less optimism by employers, the part-time rolls would be expected to be strong compared to full-time job increases. Full-time employment is up 1 million while part-time employment remains within 300,000 of its high. The pattern is set for real employment growth in the coming months.

Recession May Be Over, But Oh! The Recovery

Now that it appears the recession will be declared officially over, it is time to turn our attention to the recovery. The unemployment hole dug is much deeper than anything seen since World War II. We may have stopped digging the hole, but the job of filling it in will take years. As I have written previously, we may not reach the employment levels per capita seen in 2006-07 for a decade, if ever.

Investing in this environment will offer challenges different from much of the last half century. My opinion is that consumer discretionary spending will prove to be weaker than we have come to expect in the years following recessions. The financial sector will also be less robust than previous long job recovery cycles (1970, 1991 and 2002) because much deleveraging remains. U.S. growth stocks related in any way to robust consumption may disappoint, with the exception of leading edge technology companies which depend on narrower population demographics.

In this recovery investors may be wise to place more emphasis on defensive plays, such as health care (representative ETFs:

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John B. Lounsbury is a financial planner and investment adviser, providing comprehensive financial planning and investment advisory services to a select group of families on a fee-only basis. He worked for 34 years with IBM, and spent 25 years in R&D management and corporate staff positions. He also was a Series 6, 7, 63 licensed representative with a major insurance company brokerage for nine years.

Specific interests include political and economic history and investment strategy analysis. He holds degrees from the University of Vermont, Columbia University and the Illinois Institute of Technology, where he studied chemistry, physics and mathematics. He is a contributor to Seeking Alpha and his own blog,