Bears, Bulls, and Brokers: Employment Trends in the Securities Industry: Employment in the Securities Industry Strongly Correlates with Stock Market Value; However, Market Volume Does Not Exhibit the Same Relationship with the Employment Cycle

Article excerpt

Over the past several years, Americans have dramatically increased the amount of personal savings held in equities. This phenomenon, together with a general shifting of savings from interest-bearing deposits and bonds to individual stocks and mutual funds, has peaked awareness in investing. A pronounced shift from defined-benefit retirement plans to employee-funded plans has placed workers' retirement nest eggs more directly in the stock markets. (1) The ebbs and flows of the stock market generate much attention from individual investors. However, these cycles also have a direct impact on workers in the securities industry.

As measured by the Current Employment Statistics survey, employment in securities, commodities contracts, and investments appears to be highly cyclical, rising and falling much like the markets themselves. (2) The industry experienced modest job declines during the 1990-91 recession, rebounded during the expansion of the mid-1990s into 2000, declined once again with the 2001 recession, then rebounded in late 2003. This article examines whether the higher participation in the stock market (measured by stock market volume) or stock values (measured by stock prices) have influenced the employment cycle.

Brokers: securities industry employment

Since January 1990, there have been two periods of sustained employment weakness in the securities industry--1990-91 and early 2001 through October 2003. Both of these time periods coincided with or followed economy-wide recessions, reflecting the general parallel between cycles in the securities industry and the business cycle.

The recession of the early 1990s, which the National Bureau of Economic Research (NBER) designated as lasting from July 1990 to March 1991, was mild in terms of job losses in the securities industry. (3) From the February 1990 employment peak to the February 1991 trough, the industry lost a modest 9,000 jobs, and then employment remained rather stagnant. By January 1992, employment had returned to its prerecession peak. So, while losses were mild over the recessionary period, the initial recovery was tepid at best.

After slow growth early in the recovery, employment in the securities industry experienced robust growth. From the employment trough in February 1991 (when the index was 98.2) to the March 2001 peak (when the index was 183.2), the industry gained more than 390,000 jobs, a nearly 87-percent increase. (See chart 1.) Over the same period, nonfarm employment increased by 22 percent. However, the growth rate in the securities industry was not evenly distributed across years. From 1992 to 1994, employment increased by an annualized 6.8 percent; in 1995, job growth slowed to 1.5 percent, while from 1995 to the employment peak in March 2001, growth accelerated to an annualized 7.8 percent.

The 1990's trend of strong employment growth differed considerably from the securities industry's experience after March 2001. Employment peaked in March 2001 and, by the trough in October 2003, the industry had shed 93,000 jobs, an 11-percent decrease. Like nonfarm employment, the securities industry's employment drop from peak to trough (31 months) lasted significantly longer than the 8-month recession. A series of factors in 2000 and 2001 exacerbated the impact of the economic downturn on the securities industry. First, the run-up in stock prices during the bull markets of the late 1990s led to fear that stocks were overvalued. This condition, also known as an asset-price bubble, had a clear impact on stock markets. (4) Within 1 year of its February 2000 peak, the bubble burst as the NASDAQ Index declined by more than 50 percent. The Standards & Poor's 500 Index (S&P 500) suffered a 25-percent decline over a similar timeframe. The September 11, 2001, terrorist attacks, which resulted in the short-term closure of the New York Stock Exchange (NYSE), added momentum to markets already in decline. …