Several stock market industry segments have taken hits over the past two or three weeks as the labor market situation deteriorated slightly during the second half of January.
Health Care stocks are down 2.9% over the last two weeks (XLV); Information Technologies stocks are down 9.5% over the last three weeks (XLK); and Finance stocks are down 7% over the last three weeks (XLF). The 4-week moving average of new unemployment insurance claims has gone up two weeks in a row.
Hiring in these three sectors – Finance, Health Care, and Information Technologies – has slowed in the past two weeks too, falling off the positive trend they started in September. What's worse, year-over-year hiring improvements have swung from positive to negative in these sectors.
The following analysis confirms a great Q4 in terms of GDP growth (+5.7% annualized), but also suggests that growth rates are slowing.
Let's first take a second to make sure we're not presenting conflicting information about the labor market situation, particularly compared to the Conference Board's Help Wanted Online series which uses the "same" data as we present here (HWOL). That series uses a "mid-month to mid-month" time-frame in order to match the BLS's sampling framework which measures national employment on the 14th day of each month. In early January, we did see some positive labor market signals. However, national Hiring Demand fell by 3.7% two weeks ago (after the HWOL sampling period closed). Since January 19th, the S&P 500 index has lost 4.3% too. This is after the S&P 500 gained 3.6% during the first couple of weeks of January on positive December UI claims data.
The following table compares year-over-year changes in sector Hiring Demand (the number of new online job ads) and weekly returns of sector Exchange Traded Fund (ETF). Sector ETFs are tradable securities which mimic the composition and returns of the different sector indices developed by Standard & Poor's. Sector indices are sub-components of the S&P 500.
First, let's look at the Financial sector (XLF). Notice how Hiring – measured in YoY % changes – and yearly returns on the index move in tandem. (Year-over-year analysis removes any seasonality in the data and corresponds to a reasonable investment holding period). In the past three weeks, we've seen a deterioration in hiring in the financial sector of about 8% which has been matched by a 7% fall in the sector index. Notice how the data from the past few weeks has fallen below the trend line started in September.
The IT sector has not quite yet fully recovered from the recession, probably because investments in information infrastructure is a forward looking activity – Hiring Demand is still down compared to last year on an absolute basis. That situation has worsened recently too, with year-over-year declines going from -15% on January 9th to -18% and then to -17.5% in the two following weeks. That stock market sector index has taken a hit of 9.5% over the past three weeks.
Notice how in the IT industry hiring continued to fall even though stock prices stabilized (the blue line is moving back up as the red line continues downwards). In the Financial industry (above), hiring and stock market prices recovered at the same time.
What's interesting about the Health Care sector is that this was one of the few sectors where hiring continued to be robust despite the financial crisis. In other words, that sector was fundamentally sound and hiring did not slow down even though stocks in that sector took a huge hit. It took about 4 months for the economic crisis to hit hiring in the Health Care sector (the hiring drop-off is "to the right" of the stock price drop off). Notice how, in this instance as well, the last couple of weeks of hiring are below what we would have expected had the trend continued.
All of these graphs show the same story: (1) Moderate stabilization during the summer of 2009; (2) accelerated improvements starting in September 2009, explaining great Q4 GDP growth; (3) Three weeks of Hiring Demand data that has fallen short of what we would have expected had that great trend continued, driving sector indices downward.