US job markets have been very difficult since the Crisis began in 2008. In the past, it has typically taken 30 months for employment levels to return to their previous peak. But this time, it took until last September for the US to finally recapture the 139 million jobs peak of November 2007.
The trend in the participation rate has been even more discouraging. As I noted back in November, there has been a sharp downwards shift in the percentage of men and women in employment:
- The overall participation rate has fallen to 62.8% today versus a peak of 68% in 1997
- The rate for men is just 69% today and only 56.9% for women
- This means, worryingly, that the overall rate is now back at 1978’s level
A great deal of hope has therefore been placed in the ‘shale gas phenomenon’ as a way of reversing these trends. Jobs in the oil and gas industry have typically been highly paid (24-year old welders can earn $140k a year), and also create other jobs in the local area.
When I was last in Houston, Texas, in the summer, it was clearly ‘Boom Town’ with 10,000 people a month arriving in the city. They were part of a megatrend, as the chart above from an excellent Study by the Manhattan Institute shows:
- Since the beginning of 2008, US oil and gas employment has grown by 40% (blue line)
- Over the same period, total US job growth in other areas has actually fallen by 5% (red)
The ‘shale gas advantage’ has thus been central to US job creation over the entire period. Consultants McKinsey, for example, were euphoric about the opportunities as recently as November, writing under the headline “Shale Revolution: opportunity to jump-start economic growth”. And as Manhattan’s Study reports:
“It has created jobs in industries such as transportation, construction, and information services associated with finding, transporting, and storing fuels from the new shale bounty. In addition, America is seeing revitalized growth and jobs in previously stagnant sectors of the economy, from chemicals production and manufacturing to steel and even textiles because of access to lower cost and reliable energy”.
Now the boom seems to be turning to bust as $50/bbl oil destroys the hoped-for advantage. Companies are laying off workers, wages are being cut, and suddenly cost control has become the order of the day.
In turn, of course, this raises serious questions about the future of US jobs growth. Tomorrow’s employment numbers for December will no doubt be good, as companies are only now recognising the full extent of the price collapse.
But announcements since New Year suggest that 2015 will be a year of major downsizing and project cancellations. US Steel laid off 750 workers on Tuesday, for example, as they were forced to idle a plant that made pipes for oil exploration and drilling. And many more companies are losing jobs quietly, without media attention.
Financial markets on Wall Street are ignoring these issues for the moment. But developments in the job market reinforce my fears on Tuesday. The downside from the shale gas reversal will likely have a much greater impact on the US economy than many are expecting.