The government's official employment data for the securities industry is belatedly catching up with the entrenched pattern of layoffs on Wall Street and elsewhere. But all evidence indicates the lion's share of headcount reduction remains to come.

That somber message will surprise few professionals who lost their jobs to the credit crunch. And while financial institutions continue to hire within favored areas that include Middle East and sovereign wealth fund coverage, energy-sector trading and banking, distressed debt trading, quantitative risk management, and alternative investments, even these pockets of strength come with caveats attached. Geographic relocation, barriers to hiring candidates who recently worked in a different niche, a swollen pool of candidates competing for available openings, and uncertainty about broad economic and market conditions in 2009 - all these factors dim the employment potential inherent in the market's current bright spots.

When reviewing U.S. Department of Labor figures for non-farm payroll jobs within "securities, commodity contracts, and other financial investments and related activities," the striking thing is how rosy they appear. The seasonally adjusted series covering the entire U.S. shows that securities-related headcounts went on climbing steadily until April 2008. That would mean banking sector payrolls outperformed the economy as a whole, which shed jobs each month this year according to the very same Labor Department payroll reports – a comparison that's plainly absurd. In the 12 months through June, nationwide seasonally adjusted payrolls in securities and related industries are up by 16,800, or 2 percent, to 866,300 – less than 1,000 shy of their April peak. (The separate non-seasonally adjusted series, for what it's worth, shows that securities industry employment climbed to another record high in June.)

Within New York, Securities Jobs Fell 5.6 Percent

Industry employment figures covering just New York City depict something closer to the reality we're all familiar with. They show payrolls peaked last August and have dropped by a total of 10,800 jobs, or 5.6 percent, since. They also show securities-related employment in New York has declined by 1,400 in the 12 months through May 2008, to 181,000. (While drawn from the same U.S. Labor Department reports, city and state figures are released one month after nationwide numbers, and are not seasonally adjusted.)

Those figures agree with headcount tallies the banks themselves are reporting. Based on their most recent quarterly releases, Lehman Brothers' headcount is 9 percent off its peak, Merrill Lynch and Morgan Stanley have cut 2 percent each, and Goldman Sachs has 1 percent fewer employees than at its peak, according to the New York Times. Portales Partners, a New York-based financial sector research boutique, estimates that combined employment at the major investment banks is down only "in the low single digits from its peak." If headcounts eventually adjust to revenues and profits, Portales forecasts that Wall Street's work force would have to shrink 20 percent from the peak if revenue reverts to 2004 levels.

That 20 percent shrinkage target is one we've been repeating since January. It's the same percentage by which New York City securities employment dropped during the last previous bear market, from 2001 through 2003 - a peak-to-trough decline of about 40,000 jobs in the city and about 90,000 for the U.S. as a whole, which lost 11 percent of its securities jobs during the previous downturn.

Layoff Announcements Aren't the Best Proxy

It's been reported that banks and other institutions already have announced at least 83,000 layoffs from July 2007 through June 2008, not including retail mortgage origination jobs. Does that mean the cumulative job destruction has already matched or exceeded the decline that followed the bursting of the tech bubble after 2000? Unfortunately, it does not.

In our view, Wall Street layoff announcements are a highly imperfect proxy for what is happening to headcounts. In the first place, when global institutions announce layoffs, they often give a single worldwide figure, and don't break it out by country. That's especially relevant now, when many institutions continue to add staff outside the U.S. and Europe while they cut back at home. Second, layoff announcements usually refer to gross rather than net job reductions - in other words, they don't count new slots that a bank creates within a promising business segment while it's shedding staff from non-performing units. Third, many job eliminations are never announced at all.