Another Jobless Recovery, Part 1

Many may still be depressed over the economy for lots of good reasons.

Still, we have had a positive string of green shoots sprouting this spring through fall. The September and October weekly unemployment reports contained positive signs too.

Yes, the bad news of 17% remains with us.

The total measure of the unemployed and underemployed is around 17%. This may be the worst since the Great Depression. And while every administration harps on the need for more college degrees, our nation has never had so many unemployed and underemployed college degreed people as now.

Yet, let's now look at a positive sign.

The fact that new unemployment claims as a percentage of the labor force have been declining is the positive. This is always a good leading economic indicator.

But we now face the new great American economic phenomena known as "Jobless Recovery"

This means unemployment will continue to remain above 9% and yes, even rise to 10% over the next 6 months even as we here news the official recession probable ended this summer. One economic report I read says the economy will improve but unemployment is likely to still be around 8% in 2012 due to our economic situation.

It's not that history must repeat itself - it's that the sands of time have shifted

As a result of are outsourced and imported economy, beginning in 1991 America began experiencing what economist call "Jobless Recovery". In other words unlike the 50's, 60's, 70's and 80's, we saw big spikes in job hiring at the end of recessions, and we no longer see large job creation improvements.

Unlike like those past decades, we now purchase much (maybe most) of what we buy from foreign lands. That's were the most new jobs are being created as we recover. In fact the economic training I and every economist get totally ignores the negative impacts of importing more than you export on jobs and employment. Instead, economists will dwell all day on elementary examples of the benefits of "Comparative Advantage" which like their theory of "The Rational Man" has value but are far to simplistic to exist in a complex world of humans and changing economic tides.

You will be hearing more of this cherry coated term, jobless recovery, in the future.

Economists will dance around the causes of this issue, often claiming more research is needed. Their economic training and tenured ivory tower professor jobs limit their understanding of the real world trade issues.

Economists first called attention to this in the 1990-91 recession when unemployment continued to rise after the "official" recession end. The chart above shows the monthly U.S. Jobless rate back to January 1990 data here, highlighting (in grey) the 1990-1991 and 2001 recessions, and the two periods following the last two recessions that were referred to as the periods of jobless recovery. Following the 1990-1991 recession, the unemployment continued to increase for 15 months until it peaked in June 1992 at 7.8%, and following the 2001 recession, the jobless rate increased for 19 months until June 2003 when it peaked at 6.3%.

Even an optimistic forecast would conclude unemployment remains above 9% over the next 12 months

Assuming that the most recent recession ended in June 2009 (as many economists believe) and we have another jobless recovery of at least 16 months, we can expect unemployment to realistically continue to increase at least through the end of 2010 before it reaches its post-recession peak in the current "jobless recovery." Even an optimistic forecast would conclude unemployment remains above 9% over the next 12 months. So, don't stop taking your anti-depressants.

Let's just hope history doesn't repeat itself. Let's hope the 2009 to 2010 stock market is like the 2003 to 2004 market.

How can this impact the stock market? Well, the most recent example was the 2001-2003 market which climbed for months after the 9/11 attack and final market sell-off which proved to be the end of a much shorter recession. But by March of 2002, after a period of inventory restocking similar to our current experience the market fell for 9 straight months back to its 2001 lows before rebounding again in 2003 when unemployment finally began declining.

Note: The broadest measure of unemployment, which includes all those working part-time for economic reasons as well as workers who have looked for work within the last 12 months, increased to 17% in September. The official unemployment rate (9.8%) excludes part-time workers as well as anyone who has not looked for work in over four weeks.

Mark J. Perry Ph.D. is a professor of economics and finance in the school of management at the Flint campus of the University of Michigan. Here is his analysis of what his chart above is forecasting.

1. The chart above shows the monthly U.S. unemployment rate back to January 1990 (BLS data here), highlighting (in grey) the 1990–1991 and 2001 recessions, and the periods of rising unemployment (in blue) following the last two recessions that were referred to as “jobless recoveries.” After the 1990–1991 recession, unemployment continued to increase for 15 months before it peaked in June 1992 at 7.8 percent; and following the 2001 recession, the jobless rate increased for 19 months until June 2003 when it peaked at 6.3 percent (see blue shaded areas in chart).

Assuming that: a) the most recent recession ended in June 2009, and b) we have another jobless recovery of at least 16 months, we can realistically expect the unemployment rate to continue increasing at least through the end of 2010 before it reaches a “jobless recovery” peak.

2. To understand how long it might take for the NBER to announce that the 2008–2009 recession is officially over, we can also look to the two previous recessions.

The 1990–1991 recession ended in March 1991, but the NBER’s official announcement wasn’t released until December 22, 1992, almost 21 months later. The 2001 recession ended in November of that year, but the official announcement by the NBER didn’t come until July 17, 2003, almost 20 months later.

If the most recent recession ended sometime in the middle of 2009 and if the official “announcement lag” of the last two recessions continues for this one, we probably won’t get the official word from the NBER until February or March of 2011.

Comments

[TradingHelpDesk]

"Our nation has never had so many unemployed and underemployed college degreed people as now".

You are right.

It's the same here in the UK. There is a shrinking minority in premium business and professional jobs and a fast growing majority that are working part-time in supermarkets or in call centers - or just plain unemployed.

Every day I lose track of the number of people I meet who studied for years to be a respected professional but have had to dilute their dreams and income aspirations to fit in with the new framework of capitalism:

1. Redistribution of wealth from the many to the few.
2. Outsourcing to India, Asia etc.
3. Tax slavery for the masses.
4. Privileged treatment for the business leaders who have handily placed pals in Washington DC.

The recession accelerated this trend but it has been here for years.

2009 Nov 01 04:47 AM

[chap08]

William, you are right to highlight the impact of trade on jobs - absolutely right. But it is also necessary to specifically consider outsourcing.

I have been involved in outsourcing and, based on that experience, I can tell you that we have only just started. Many, many jobs are largely conducted electronically, through IT systems, voice and vision. There is less and less reason to keep these jobs in the US. Why not have the job done overseas by someone who is intelligent, hard working ... and a lot cheaper? If there is a job that requires 50% physical presence, then split the role in 2, outsource the part that only requires electronic working and halve your local workforce. Pretty much any skilled or professional job will be afftected by this process. What jobs will not be affected? Well, truck driving, construction, cutting hair, collecting the trash ...

This is an ongoing process that will only be stopped when US workers become competitive with those overseas. How will we become competitive? Well, we could work twice as hard. Or, we could somehow develop a skills advantage (although the reality is that Asians are currently developing skills faster than us). Or, we could look for a progressively lower dollar - with all that implies. Any other ideas?

2009 Nov 01 01:35 PM

[483827]

I am from Hawaii where Pigeon English was carried by the children of the Moms and Dads who immigrated to work the Sugarcane and Pineapple plantations that sprung-up in the early to mid 1800s. So here's the Pigeon English version of the Jobless Recovery. It's called the "Stay Go Recovery."
The greater majority of economists and Washington Think Tanks refer to our current economic situation as a Jobless Recovery.

While my wife and I shared lunch one afternoon this past week, we were discussing the many free political and economic Emails that I receive. And all of a sudden a light bulb went on and I said to my wife, the Jobless Recovery sounds like a "Stay Go Recovery." And did she ever laugh so much.

For us island folks who remember our early school days and our school mates who spoke the early plantation days "Pigeon English," like Jamsie might inform me that Millie no stay home, she "Stay Go" see da movie, he would say. Now how can Millie stay but go. No make sense, yea.
Well its same like da "Jobless Recovery." How can we have one recovery without jobs. Simple, don't you tink, no jobs, no recovery.
Too bad, yea, dat Obama no rememba his Pigeon English when he went stay live in Hawaii cuz den he might mo bettah understand what he "Stay Go" talk to us about.
You "Stay Go" laugh now. Okay.
And dat's why da "Jobless Recovery" is one "Stay Go Recovery."

2009 Nov 01 02:33 PM

[LilBob]

Some day we may see an entry in dictionaries of slang:

"Jobless Recovery": A popular oxymoron in an economy which is based on consumption. A form of rationalization turned to by those who want to deny the likelihood of a prolonged economic recession.

Derivation: This term gained widespread usage in the summer through winter of the 2008-2011 Recession by those who did not want to admit that increases in the stock market were largely attributable to retail and institutional investors placing large amounts of funds into market equities rather than personal consumption or institutional hiring. The utilization of this fallacy was crushed when widespread realization of the drastic increases in market average P/E ratios led to comparisons to the "Doc.com" bubble of the early to mid 90s and resulted in a crisis in investor confidence.

2009 Nov 01 02:34 PM

[LilBob]

On Nov 01 02:34 PM LilBob wrote:

> "Jobless Recovery": A popular oxymoron in an economy which is based
> on consumption. A form of rationalization turned to by those who
> want to deny the likelihood of a prolonged economic recession.

Just for fun I want to see if I can start a phrase. To me the notion of a "Jobless Recovery" is about as likely as "Follicle Free Hair Growth" ergo, anyone who uses the phrase "jobless recovery" when not being ironic, I will refer to as a "toupee economist".

2009 Nov 01 02:43 PM

[Gary A]

This is the problem, a jobless recovery cannot be a robust recovery. No V shapes here. If you still believe that the world is coupled to the US consumer, it is just a matter of time before this jobless recovery loses steam and takes the world down with it.

If we save and the Chinese save for a few years, then maybe there will be a non stimulus recovery, ie, a real recovery.

2009 Nov 01 08:52 PM

[Ali Mogharabi]

I think most will agree that this is likely to be another jobless recovery. The question is - will it be successful similar to the previous two jobless recoveries. Those were successful but only for a short period of time. What drove those receoveries was consumer credit and consumers leveraging various assets (such as homes) to continue to consume, helping push those recoveries through.

The environment is very different now. Consumers no longer have credit. In addition, they remain highly levered. During the first four months of this year, we were actually seeing positive indications for the well-being of this country's recovery for the LONG-TERM - 1) consumers were trying to pay off their debts; and 2) they had begun saving again. However, govt stimulus plans (such as the cash for clunkers) drove consumers to again save less and spend more. Those green weeds started sprouting and everyone thought everything would be great, indicated by the huge jump in the equity mkt.

Unfortunately, the govt programs not only help sprout those greeneries, but they also help kill them. The green shoots will not and have not grown to create a lasting, or I must say, a valid, economic recovery.

Although current zero rates indicate otherwise, I still think paying off debts and saving would be the best way to recover from this downfall. It would help the recovery last for much longer than basically every election year. As we all know, the politicians will push through bills that provide that short-term 'high' for the economy, but also make the economy more dependent on those measures and/or dollar printing in the long-run.

The equity mkt has had a life of its own. Its basically controlled by a couple of big banks (just ask yourselves why Goldman came out with a huge cut in its GDP estimate only a day before that # was to come out) that make money just by trading. They help themselves by publishing very very low estimates which they know most companies can beat during earning seasons. Look at their assets ... all plummeted and continue to do so. They are not willing to lend. That should give you a good idea about where they think the economy is really headed.

It comes down to accepting the highly probable change(s) taking place in our economy - consumers are not willing to consume (unless the govt gives them free $, which will come back and haunt them in a few yrs) and the US GDP cannot remain strong based on 70% consumption.

Let the Chinese continue tap into their huge domestic mkt. Let them get a taste of that great "high" of consuming. And let it create an opportunity for us to finally begin producing/manufacturing again. This transition will take a while, but its the best for the US economy for the long-run. With cheaper dollar (will likely be cheaper in a couple of yrs too), let those Chinese buy our stuff. Let the cheaper dollar make the US more attractive for production not only by American companies but also foreign ones. let the true measure of the wellness of the economy be based more on production rather than consumption.

Of course no one has such patience. So we will continue to go through these short-term cycles and will continue to destroy the economy from within. Sounds a bit pessimistic ... but I guess that's been my view of the economy for a long time.

2009 Nov 02 03:08 AM

[thiazole]

Anyone notice that the ISM index indicated employment growth in October?

I'll bet anyone here that not only will we not have a jobless recovery, but that we will see jobs growth by the 1st quarter of 2010 (and maybe even in December of this year, but if so, just barely). After the 2001 recession, a TRUE jobless recovery, it took about a year and a half before the unemployment rate started dropping.
So please, stick you neck out and make a friendly wager (for bragging rights, nothing else) here that you really believe that we will have a jobless recovery (and if you are a coward, you can just anonymously give me thumbs down to avoid me pointing you out as losing the bet in a few months).

2009 Nov 02 12:25 PM

[thiazole]

By the way, giving the thumbs down without making a post (the coward's way of debating) is the same as admitting that you are probably wrong. If you were confident in your position, you'd accept my friendly bet.

2009 Nov 02 03:11 PM