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.

Source: WANTED Analytics, Google Finance

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.

© Copyright 2010 WANTED Technologies Corporation

The XLV 'exchange traded fund' (ETF) which mimics the performance of the S&P500 Healthcare Sector Index has grown at an impressive 2.8% a month since March as well.

It seems, however, that the XLV ETF is only "catching up" to where it should have been. The healthcare sector is one of the only sectors to have resisted the recession, and the performance of publicly traded healthcare companies should not have been so heavily discounted.

Source: WANTED Analytics

The correlation coefficient between the two has been 0.63 over the past 4 years, indicating a structural relationship between the level of XLV Hiring Demand (number of new online job ads posted by the companies comprising the XLV index) and XLV ETF returns. In fact, a regression equation indicates that for every 1% increase in XLV Hiring Demand, the XLV ETF grows by 1% as well.

WANTED: Analytics

© Copyright 2009 WANTED Technologies Corporation

On June 19th, 2009, the yearly return on the health care sector Index was -16.7%.  This week (June 30), the Index is down only 13.6% compared to the same date last year, the best performance since October 11, 2008.   Since March 5th, the S&P 500 Health Care Index is up 22%.

Source: WANTED Analytics

Hiring Demand has slipped after the spike experienced in mid-May. Year-over-year changes in Hiring Demand (based on the 4-week rolling summation of Unique New Ads) reached a peak of -19.7% on May 15, 2009.  However, it slipped back down to -50.0% two weeks ago, and -45.4% last week.  Despite improvement in the Index, overall Hiring Demand is still trending downward.

Source: WANTED Analytics 2.0

The following time-series graph shows the time series of year-over-year changes in both Hiring Demand and S&P 500 Health Care Index returns.

Full-size chart available on Jobs. Trends. Insight.

More illuminating is the following scatter plot, which shows the structural relationship between year-over-year changes in Hiring Demand and year-over-year returns in the S&P 500 Health Care Index.  The green box is this week's data point.  Points above the line mean that Index returns are greater, on average, than what has been seen at that level of Hiring Demand.  In other words, the Health Care Index has appreciated more than what is justified – at least based on historical Hiring Demand data.

Full-size chart available on Jobs. Trends. Insight.

© Copyright 2009 WANTED Technologies Corporation

Full-size chart available on Jobs. Trends. Insight.

In the chart to the left, Hiring Demand(the blue line in the chart) for companies comprising the The S&P 500 Health Care Index has moved upward recently, according to the latest WANTED Hiring Demand data.

For the week ended May 2, year-over-year change in Hiring Demand based on online job ads improved from -39 percent the prior week to -29 percent (based on the count of Available Ads). For the same period, yearly returns for the Index were up two percentage points, year-over-year, from the prior week, ending at -26 percent.

The scatter plot chart below compares yearly returns on the S&P Health Care Index, compared to the year-over-year growth in Hiring Demand in the companies making up this index. (The Health Care Index is made up of 54 companies in this sector, and accounts for 13.9 percent of the market capitalization of the entire S&P 500.)

Full-size chart available on Jobs. Trends. Insight.

Investors looking for opportunities to profit in this sector can compare Index returns to changes in Hiring Demand on a weekly basis to estimate the structural relationship between Hiring Demand and stock returns, as evidenced by this scatter plot.

Each dot represents a week. If Hiring Demand is strong but Index returns are weak – a point below the fitted line – that can signal a buy opportunity, as returns will have to catch up to hiring demand.

The broader health care sector added a modest 16,800 jobs in April, according to last Friday's BLS preliminary report. WANTED's hiring demand data for the health care industry indicates that new online job ads remain in negative territory, down nearly 27 percent year-over-year.

© Copyright 2009 WANTED Technologies Corporation