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How Recession-Proof Is Your Job Sector?

Tyler Durden's picture




 

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

History suggests that previously sound assumptions about financial security and recession-proof sectors may not apply in the next recession.

Nobody wants to lose their job in a recession, but that's what happens when credit tightens, profits fall and tax revenues decline. Every enterprise that can't borrow unlimited sums of money at near-zero interest rates has to cut costs, and since labor and labor overhead (pension contributions, healthcare insurance, etc.) are the biggest expense for the vast majority of enterprises (including government agencies), payroll must be trimmed one way or another: either by lay-offs or by attrition, i.e. not hiring replacements for workers who retire or quit.

Some sectors are highly sensitive to the economic cycle. Courtesy of Market Daily Briefing, here is a chart of each primary job sector's gains and losses over the past decade. I have added boxes to identify the sectors most sensitive to economic contraction (i.e. recession) and those that are less sensitive.

The most recession-proof sector is (no surprise here) Education and Health.Manufacturing, transportation and construction are highly sensitive, as any credit hiccup quickly cuts into auto and home sales, which then cuts into the transport of raw materials and finished goods within these sectors.

Though government employment is generally considered rock-solid due to the job security provisions of civil service and public union contracts, as a sector, government isn't quite as recession-proof as is widely assumed. Government on all levels (Federal, state and county/city) subcontracts many services, and government payrolls can be trimmed by attrition.

This chart raises two implicit questions:

1. What if the Federal Reserve's monetary easing fails to pull the economy out of the next recession?

2. What if structural changes are eroding the recession-proof sectors?

In other words, what might be different in the next recession?

The reason why these questions arise is the Federal Reserve has already pursued extraordinary policies to the point of exhaustion. The Fed has not just emptied its bag of tricks during the past six years since 2008, it has run these policies to the point of diminishing returns: interest rates can't go any lower, the Fed already owns much of the Treasury bond market and mortgage market, it continues to intervene in capital and stock markets, and so on.

The Fed did not flood the U.S. and global economies with free money and credit and then withdraw this unprecedented intervention: it has kept its foot on the accelerator for six long years.

Only now that its monetary heroin is triggering blowback in various global markets is the Fed tapering a bit of its massive interventions. But the question remains: given that the Fed has gone all-in for six long years, what's left for it to do in the next recession that isn't even riskier than its current all-in gamble?

Though many seem to have fallen for the Fed-induced fantasy that business cycles and credit cycles have been banished and the stock market and economy can both loft higher forever, the reality is that flooding the economy with cheap credit and buying assets to inflate asset bubbles have only guaranteed the next turn of the credit cycle will be more disruptive than previous turns, as the quality of the debt that's been issued is even more marginal than in previous expansions.

This is why Gordon Long and I consider this a Subprime Economy: the expansion is all based on increasingly marginal borrowers and marginal debt.

In effect, the Fed has extended the financialization process to the point that the entire economy is increasingly dependent on subprime credit/debt that is highly sensitive to any decline in income and asset prices.

We can visualize this dependency on marginal borrowing and debt as a rising wedge that reflects the Ratchet Effect: as the system becomes ever more dependent on an expansion of marginal debt based on stagnant income and phantom assets, it also becomes increasingly prone to collapse:

In effect, the Status Quo has no response to this heightened vulnerability to collapse of the credit bubble. The Fed's monetary heroin does not address the need to rationalize the bloated, wasteful, inefficient sources of malinvestment and unsustainable spending: higher education, healthcare (the previously recession-proof sectors) and government spending based on cronyism and politically sacrosanct fiefdoms (such as defense spending).

Yet such rationalization is unavoidable. I highly recommend this recent article in Foreign Affairs on the larger context of jobs and bloated sectors that have been protected from innovation, competition and transparency: Labor, Capital and Ideas in the Power Law Economy.

History suggests that previously sound assumptions about financial security and recession-proof sectors may not apply in the next recession. That means each household will have to look after it's own financial security rather than blindly rely on assumptions which may not hold in the next credit contraction.

In my view, the only "recession-proof" income is one you own and control, preferably drawn from a variety of sources so it is not too dependent on any one sector or on the doomed expansion of marginal debt and asset bubbles.
 

 

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Tue, 07/08/2014 - 13:04 | 4935827 Headbanger
Headbanger's picture

Job??

Tue, 07/08/2014 - 13:16 | 4935865 Handful of Dust
Handful of Dust's picture

Is the "J" silent? Or is it pronounced like a"Y" as in "Yosef?"

Tue, 07/08/2014 - 13:22 | 4935916 cougar_w
cougar_w's picture

The whole word is silent, and in fact has lost all meaning.

Hey, anyone notice how "job" replaced "work" when work became something you did every day for a paycheck and that made you sweat? Jobs don't make you sweat, and now only poor people work.

Job is becoming old hat too. We need a new word to describe what it is you do that keeps you moving forward pretending to have an economic future. "Job" just doesn't quite do it. "Job" was what you dad had. The rest of us now have part-time hobbies that both distract and sometimes bring an income while keeping us feeling productive and off welfare.

Tue, 07/08/2014 - 13:31 | 4935954 Headbanger
Headbanger's picture

"Occupation"??

 

Tue, 07/08/2014 - 13:36 | 4935973 cougar_w
cougar_w's picture

hurrrrm ... does it have to occupy all my attention? Because I read today that of time spent at work 25% is actually wasted on social networking sites.

I probably do 10% anyway. But only at ZH -- which is important shit not wasted time -- so this is also part of my "occupation". Just say'n

Tue, 07/08/2014 - 13:51 | 4936039 Manthong
Manthong's picture

What if your sector is body armor?

Tue, 07/08/2014 - 13:15 | 4935872 Sudden Debt
Sudden Debt's picture

It's like a internet cafe with free coffee but where you get paid to be there.

Tue, 07/08/2014 - 13:48 | 4935914 dontgoforit
dontgoforit's picture

Yeah - wouldn't it be weird if WMBanzai7 turned out to be the guy in the cubicle next to yours?  Ha ha.

Tue, 07/08/2014 - 13:28 | 4935935 cougar_w
cougar_w's picture

Pretty much.

Tue, 07/08/2014 - 13:08 | 4935834 LawsofPhysics
LawsofPhysics's picture

Economic plate techtonics...  the rate of change can be highly variable.  Much like going broke, things can slowly, almost un-noticbly, get worse before changing "all of a sudden"...

 

same as it ever was...

Tue, 07/08/2014 - 13:08 | 4935840 CrashisOptimistic
CrashisOptimistic's picture

The least recession proof job sector -- Bond Shorting advisor.

Tue, 07/08/2014 - 13:10 | 4935844 CrashisOptimistic
CrashisOptimistic's picture

"1. What if the Federal Reserve's monetary easing fails to pull the economy out of the next recession?"

 

What if the first month of taper kicking off Q1's -2.9% GDP is not coincidence?

Tue, 07/08/2014 - 13:12 | 4935853 IANAE
IANAE's picture

we shall all see very soon...

Tue, 07/08/2014 - 13:21 | 4935907 dontgoforit
dontgoforit's picture

Uncharted territory.  Risky, danger-filled and potentially fatal.  However, potentially regenerating.  We need some political will to do the right thing instead of doing it for ego, broken ideological bent or revenge.  Dreams of My Father is killing us.

Tue, 07/08/2014 - 14:05 | 4936105 Georgia_Boy
Georgia_Boy's picture

Well the next step is just further down the same path, correct?  Next recession, the government just makes a deal with the Fed, we'll fork out another trillion dollar stimulus, you monetize the debt.  It's all just paper so everyone's happy, right?  Well, not people who have savings, but that's just mostly old white people, they can check their privilege.  Interest rates are just stuck on the zero bound forever, they're irrelevant now.

Tue, 07/08/2014 - 13:12 | 4935852 cougar_w
cougar_w's picture

Forget about recessions. I want to know which sectors do best after the imposition of martial law.

Tue, 07/08/2014 - 13:18 | 4935884 NotApplicable
NotApplicable's picture

Politically connected private security firms, of course.

Tue, 07/08/2014 - 13:19 | 4935896 Headbanger
Headbanger's picture

I'd go with gunsmithing and ammo reloading along with distilled spirits for starters.

Tue, 07/08/2014 - 13:20 | 4935901 CrashisOptimistic
CrashisOptimistic's picture

Farmland.

In another country.

Tue, 07/08/2014 - 14:52 | 4936352 Citxmech
Citxmech's picture

Definitely farmland.  

Not so sure anyplace else is going to be more reliably secure long-term though.  

I particularly like being completely comfortable/fitting-in with the culture/language of my local community.

FWIW - I think picking a spot these days is like a spider building a web - the good locations are mostly just the luck of the draw.

Tue, 07/08/2014 - 13:23 | 4935917 Postal
Postal's picture

I would guess underground bunkers and individually sized tunnel boring machines.

Tue, 07/08/2014 - 13:13 | 4935858 Uchtdorf
Uchtdorf's picture

Foreign Affairs?! That One World rag?

Tue, 07/08/2014 - 13:13 | 4935859 Dr. Engali
Dr. Engali's picture

Okay Charles, I will repeat myself...Again. We are in a fucking depression and we have been since 2000. SNAP, disability, and other .gov programs partnered with continued propaganda from the ministry of truth masks that fact. Recession? That would be an improvement.

Tue, 07/08/2014 - 13:15 | 4935871 cougar_w
cougar_w's picture

Chuck has to play along with the game on the ground. We all do. Heck I came to work this morning -- again -- as if there was nothing at all wrong in the world, knowing full well everything around me is in terminal decline.

Of course I'm not totally onboard; I rode my bicycle.

Tue, 07/08/2014 - 13:24 | 4935920 Dr. Engali
Dr. Engali's picture

Speaking of bike riding, Kittel is a fucking machine.

Tue, 07/08/2014 - 13:33 | 4935958 cougar_w
cougar_w's picture

I assume you are referring to how he rides a bicycle, rather than making some kind of statement regarding his sexual prowess..

He claims to be dope-free. Since he's managed to flub a few races I guess he must be. Either that or he's faking it to put everyone off their guard.

Lance was always and today remains a punk.

Tue, 07/08/2014 - 13:37 | 4935975 Dr. Engali
Dr. Engali's picture

After re-reading my post I can see the confusion. Lance turned out to be a disappointing fake. In retrospect he turned out to be an excellent representation of what the U.S has become.

Tue, 07/08/2014 - 14:07 | 4936118 BeerMe
BeerMe's picture

A narcissist that thinks they are above everyone?  And nothing will ever catch up to them?

Tue, 07/08/2014 - 13:29 | 4935942 pakled
pakled's picture

... and you get to post to nefarious websites while at work...

 

+1

 

Tue, 07/08/2014 - 13:21 | 4935908 booboo
booboo's picture

Walmart EBT soup kitchen.

Tue, 07/08/2014 - 13:17 | 4935882 dontgoforit
dontgoforit's picture

It's why I abandoned the high-flying, high-paying private sector in 2008 and headed to the education side of life with it's low pay, but great insurance, time off and pension.  Only 4 more to go....

Tue, 07/08/2014 - 13:30 | 4935948 pakled
pakled's picture

Thus your ZH handle... ?

Tue, 07/08/2014 - 13:44 | 4936002 dontgoforit
dontgoforit's picture

You nailed me, pakled.  I went for it for 45 freaking years....tired old bastard now, but can still bench 200 and kill a rabbit with a 10/22 at 100 yds, so I feel pretty fortunate.

Tue, 07/08/2014 - 13:19 | 4935891 agstacks
agstacks's picture

I was "unleashed" from my job earlier this year.  This nice lady Nancy explained work is not required in our modern economy.  I am currently working on my surfing and lady-slaying.  Before you judge me, you should know Nancy also explained how my unemployment benefits help the economy! So it's a win-win. 

Tue, 07/08/2014 - 13:26 | 4935929 cougar_w
cougar_w's picture

Good on you. But please have a Plan B for when the checks stop. On that day there is going to be an army outside my house demanding their free shit, and it would be really awkward to go out there and find a fellow ZHer tearing down my grape trellis.

Tue, 07/08/2014 - 13:33 | 4935964 Dr. Engali
Dr. Engali's picture

Well we should be seeing plenty of posts from you for the next 99 weeks.

Tue, 07/08/2014 - 13:28 | 4935925 Jayda1850
Jayda1850's picture

I'm in the produce business, which gives probably the best barometer of business activity due to the fact that the product must be sold within a couple days of receiving from the field. I will testify business has been shit this year, hauling has been the  backbreaker so far this year. I'm paying close to $10k for a cali truck to baltimore.

Tue, 07/08/2014 - 13:40 | 4935979 Never One Roach
Never One Roach's picture

More "job" pressures are going to build up with thousands of illegals flooding across the border. I think my lawn service is going to get even cheaper this year with 2 or 3 new ones knocking on my door each week for work.

 

Sort of balances out my tax increases to pay for all of Barry's "detention centers" to house, feed, educate these people. I suspect we're going to see more 'Safety Zones."

Tue, 07/08/2014 - 13:39 | 4935982 22winmag
22winmag's picture

JOB = Just Over Broke

Tue, 07/08/2014 - 13:45 | 4936012 moneybots
moneybots's picture

"This is why Gordon Long and I consider this a Subprime Economy: the expansion is all based on increasingly marginal borrowers and marginal debt."

 

Sounds like exploitation of the poor.

Tue, 07/08/2014 - 13:51 | 4936041 dontgoforit
dontgoforit's picture

That's why they're all coming up from Central America - for the exploits.

Tue, 07/08/2014 - 14:12 | 4936151 BeerMe
BeerMe's picture

How much is it costing the U.S. government to ship them up?

Tue, 07/08/2014 - 14:14 | 4936165 Critical Path
Critical Path's picture

So the recession proof sectors are health, education, and government...?  Does anyone else find this comical

Tue, 07/08/2014 - 17:07 | 4936914 Conax
Conax's picture

"H.I., you're young and have your health, what you want with a job?"

-Raising Arizona

Tue, 07/08/2014 - 18:25 | 4937215 theyjustcantstop
theyjustcantstop's picture

maybe a chinese pay-day-loan, rent-a-center sector, america-wide, catering to private, public, and govt. ex-union empolyees. 

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