Jobless Recoveries Are a Recent Phenomenon

Writing in Friday morning's Ahead of the Tape column in the Wall Street Journal, Mark Gongloff observed that "jobless recoveries" are a relatively new development.

The time-worn Wall Street gospel is that employment is a lagging indicator, but that isn't always so. It has only lagged significantly in the recoveries that followed the past two recessions.

In the eight recessions between World War II and 1982, payrolls bottomed and unemployment peaked, on average, less than one and two months, respectively, after the recessions ended.

Assuming, as most economists do, that the latest recession technically ended in June 2009, this recovery already is looking jobless.

...Economists, on average, expect unemployment to peak in February 2010 -- eight months after the recession's assumed end. Even that forecast might be optimistic.

Yes, that's a typo in the graphic above (something that seems to happen quite a bit these days). It should say "Nov. 2001" as the end date for the last recession.

In chart form, the situation is as shown below, via the Kansas City Federal Reserve (click chart to enlarge).

Those sharp declines in unemployment following all recessions right up through the 1982 downturn represent an economy that is quite different than the one we have today. Naturally, the differences were viewed as a good thing during the last two recessions when unemployment peaked at relatively low levels.
Now that we're challenging the early-1980s peak in unemployment with a return trip to lower levels of joblessness likely to come at a sluggish pace, these differences are taking on a whole new connotation.

Comments

[Tom E.:]

Its globalization. Many companies use recessions as an excuse to off shore.

Nov 06 02:34 PM

[Mr. G:]

I agree that the 10.2% unemployment rate versus a 3% increase in GDP presents an unusual circumstance given historic data. I have given this some thought. My humble opinion is the the global rise in the BRIC nations, as they embrace some form of capitalism, is rendering the old models irrelevant, and the recent jobless recovery appears to be a product of US companies participating in revenue production on a global basis rather than an isolationist economy.

Under the BUSH economic policy,corporations were encouraged to find cheaper labor costs overseas. I think the current unemployment rate is directly proportional to that supply side reasoning. UNTIL THE CURRENT ADMINISTRATION FIGURES OUT A TAX POLICY to reignite higher local employment which I think they are trying to do with job stimulus, I fear that globalisation is the only answer to an increasing GDP.

Under this model, the unemployed are going to have to reeducate and the US is going to have to figure out how to put these people back to work if we expect consumption data to increase locally. GI

Nov 07 11:17 AM

[Robert H. H...:]

The "jobless recovery" phenomenon dates back to the 1990 recession. Midway through Clinton's first term in late 1994, early 1995, commentators were still referring to the jobless recovery (and blaming it on President Bush... some things never change.)

This chart (total employment, not seasonally adjusted, establishment survey) clearly shows that employment levels, which in earlier recoveries rebounded quickly at recession's end, recovered more gradually coming out of the 1990 and 2001 recessions.

research.stlouisfed.or...

Surely, in the post-war recessions up to and including the early 80's double-dip recession, employment levels during recessions were driven by contraction and expansion of the manufacturing sector, which responded quickly with layoffs and re-hiring as the economic outlook changed. Since then, employment changes have been more moderated.

The following chart (manufacturing payrolls, seasonally adjusted this time) shows that in the 1990 and 2001 recessions, manufacturing payrolls actually shrunk after the recession's end (consistent with Tom E.'s comment that firms use recessions to off-shore manufacturing jobs).

research.stlouisfed.or...

But it's too simplistic to ascribe the change in post-recession employment too off-shoring of manufacturing jobs. The second chart shows that manufacturing jobs have declined by a little over 2 million since their peak just before the current recession. With a labor force of about 140 million, the direct result of the decrease in manufacturing jobs during the current recession is an increase in the unemployment rate of about 1.4%, only about one-quarter of the 5.3% increase in the unemployment rate during the recession. So the bulk of the increase in unemployment has come from non-manufacturing jobs.

Indeed, it seems that non-manufacturing jobs may have more "flex" in per-capita productivity, so that as the economy expands, firms can expand output with a smaller number of workers (for awhile) before they are compelled to begin hiring again.

Nov 07 12:42 PM

[Mr. G:]

I think your analysis overlooks that out sourcing mfg jobs also decreases the surrounding activity that relates to mfg jobs and when firms move out of the country, the surrounding staff either moves or becomes unemployed, thus I do not see an exact correlation in your analysis. Obviously, you agree with supply side economics. Did not mean to raise hackles, but I dont see how outsourcing benefits America.

A 20% decrease due to mfg is significant, and tends to depress sentiment across the country which also discourages hiring practises from the locals. I will say your analysis correlates with the ISM-mfg index.GI

Nov 07 01:14 PM

[wildfirexx:]

Think how much higher the unemployment level might be if the baby boomers weren't retiring, as many are doing...or if there was a new surge of young americans coming into the workforce like in the 70th's and 80th's.

Nov 08 02:44 AM