A few days ago, in “Dear Texas, Welcome To The Recession [7],” we said the following about oil-related job cuts in the Lone Star State:
“While Challenger has found 'only' 37.8K energy-related layoffs in the first quarter, when broken down by state, things get bad for Texas, very bad. As in recession bad, because with 47K total layoffs, or 10K more than all energy-related layoffs, in just this one state so far in 2015, it means that the energy sector weakness has moved beyond just the oil patch and has spread to the broader economy and related industries in the one state that until recently had the best jobs track record since Lehman.”
Unfortunately for Texas and for any other state whose economy is tethered to anything energy-related, the knock-on effects of persistently low crude prices (which, as indicated by the fact that on-land storage capacity is well-nigh exhausted in the US, will likely remain under pressure) have only just begun to show up because as Goldman notes, job cuts for “closely related” industries typically run at three times the current rate in oil downturns, suggesting there’s quite a bit more pain to come. Here’s more:
Oil & gas-related employment has declined each of the last three months. We find that in previous oil-sector downturns, job growth in non-energy sectors that are closely related to the oil & gas industry--particularly certain segments of manufacturing and construction--has declined by three to four times as much as the decline in oil & gas employment itself. This means that in addition to the 10k or so monthly declines in energy-related jobs we expect over the next several months, we should begin to see more of an effect in these other areas as well. Over the remainder of this year we continue to expect overall payroll growth to average close to the current 197k three-month average, placing more of the burden on consumption-focused sectors to drive job growth.
[8]
If we are correct that weakness in oil-related employment will spill over into slower job growth in closely-related non-energy sectors, the burden will be on consumer-related sectors to produce a greater share of payroll growth than they have on average over the last several months. While this seems likely over the longer run, it does raise the possibility that the negative effects on job growth from slowing oil production, where the adjustment has been more immediate than expected, could be a bit more front-loaded than the employment boost from consumer spending.
So essentially, it's all up to retail hiring which is supposed to get a "boost" from consumer spending. This seems rather ironic because as we discussed last month, the correlation between wage growth and consumer spending is now close to perfect [9] at 0.93 and if NFP data is to be believed (which it's sometimes [10] not, but let's let that go for now), the only categories adding jobs are those where pay is generally low and as we've shown, "wage growth" is a concept that is now reserved [11] exclusively for America's bosses. So in the end, if consumer spending is going to be the linchpin, all of that mythical wage growth better start materializing for the 80% of the workforce who is classified by the BLS as "non-supervisory".
