The US Job Scenario

The Bureau of Labour Statistics monthly report released on Friday (5 June 2009) has indicated that the brutal pace of job losses on Wall Street may be slowing, but experts remain cautious about whether this means a quick turnaround is on the way.

Finance and real estate jobs fell again in May, but at a much slower pace than in previous months.

The financial services sector lost 30,000 jobs in May, less than the 50,000 jobs some analysts were expecting would be lost. The number was also much lower than the prior six-month average monthly job loss of 46,000.

Half the jobs lost in May were in credit-related areas, including credit cards and sales financing. Another 10,800 jobs were lost in securities brokerage, followed by 3,500 jobs in insurance.

On a positive note, 600 jobs were gained in the mortgage brokerage and processing sub-sectors, reflecting the recent surge in mortgage refinancings, though that gain may be short-lived if the higher mortgage rates of recent weeks choke off interest in refinancing.

The real estate sector also showed some signs that the worst might be over, losing a net 11,000 jobs in May, compared with 13,000 in April.

News of the slowing trend has been welcomed but is not surprising to economists who have been seeing signs of improvement in key indicators for some time.

In the latest sign of recovery, the US government said yesterday it had agreed to allow 10 of the nation's biggest banks to pay back a combined US$68 billion (RM238 billion) of taxpayer money pumped into them last year to combat the financial crisis.

"We think firms have effectively reduced jobs through rapid job cuts over the past several months already," said Michelle Meyer, an economist at Barclays Capital. "Broadly speaking, the pace of job cuts should continue to slow, reaching a bottom some time in the third quarter."

And financial recruiters have also seen some light at the end of the tunnel. "We've already seen selective hiring particularly at boutique investment banking firms," said Skiddy von Stade, chairman of OneWire.com, a finance industry hiring and career management tool.

From Evercore Partners and Greenhill & Co, to Moelis & Co, Nomura Securities, and Perella Weinberg, boutiques have been poaching high profile names from larger banks, including Bank of America, JP Morgan Chase, and Morgan Stanley, for months.

Still, further job cuts loom, but it is unclear where these cuts stand because some banks are being less than forthcoming about numbers.

For example, Bank of America announced in December that it was slashing as many as 35,000 positions by 2011, but a spokesman declined to provide any updated figures when asked yesterday about how many of those staff have already gone.

Citigroup has cut 63,000 jobs since the end of 2007, including 13,000 by March 31, but a spokesman declined to comment further on what has happened since.

Some economists are not overly optimistic about hiring on Wall Street until the economy and lending picks up again.

"These types of economic events work in a U shape where there's a slow bottoming out, rather than a V shape where there's a sharp turnaround," said Larry White, a professor of Economics at New York University's Stern School of Business. "We still have some ways to go."

However, few expect the heyday for jobs and bonuses on Wall Street to return anytime soon and some doubt it will at all.

In an interview on Sunday, the head of the world's second-biggest bank by market value, China Construction Bank, said that he still sees the US and Europe as overbanked. "The financial sector is overdeveloped," he said, forecasting that it would play a significantly smaller role in the economy in the future, said CCB chairman Guo Shuqing in an interview with Reuters.

Real estate agents are also less confident, expecting job losses to continue well beyond the end of the year, as there are still too many brokers given the lower level of home sales and as the decline in prices also hits commissions.

"I expect another loss of 100,000 jobs to the industry," said Dave Liniger, co-founder and chairman of RE/MAX International, a global realty company. "The vast majority will be inexperienced professionals who came in towards the end of the boom."

Further deterioration in the commercial real estate markets, caused by seized credit markets and vacancies, will fuel cuts in brokerage and support areas.

"Commercial real estate tends to lag residential," said Bob Toothaker, chair of the National Association of Realtors' Commercial Alliance Committee. "If things continue this way, it's entirely possible that more strip malls and whole office buildings could go dark."

When real estate and finance jobs do return, the level of qualifications of applicants will be much higher than in recent years, realtors and recruiters say.

"In the past, companies wanted 10 requirements from candidates and would accept six," said Craig Termotto, a recruiter for financial services recruiting firm Michael Page International. "Today, they want 10 and are taking candidates with 12."

New York City has lost 26,000 finance sector jobs since August 2007, according to Frank Braconi, the New York City comptroller's chief economist. "We estimate 50,000 will be lost in New York by the end of the recession" he said.

So, is this a balanced prospective report on the foreseeable future for the US economy?