Employment May Never Recover

The DOL (U.S. Dept. of Labor) released surprisingly negative employment data for December. In November, the data surprised on the positive side. A moving average treatment of the data reaches conclusions which are unchanged from two months ago. My analysis of today's Employment Situation Report is now posted at TheStreet.com.

I used some unique second derivative analysis to project when employment will turn positive. Unfortunately, to return to 2007 employment levels, will require 290,000 job gains a month from late 2010 to late 2016.

To put this in perspective, the average monthly employment gains in the last recovery, from the beginning of 2003 to the end of 2007, were 146,000 per month. In the 1990's, from the end of 1991 to the employment peak in March, 2001, the average monthly gain in jobs was 154,000.

Of course, between now and 2040 there are likely to be several recessions. If the economic patterns of the past two decades are repeated, we will never again reach 2007 employment levels. This is illustrated by the following graph:



With an average job growth rate of 250,000 per month we return to the pre recession level of employment in nine years. With 200,000 per month job growth, we get there in 18 years. At 150,000, approximately the rate during the expansion periods of the 1990s and 2000s, we never regain previous employment levels.

This graph from http://www.thechartoftheday.com shows what has happened to job creation during the past decade:


The total employment change (the chart shows only the payroll portion of employment) during the 10 year period was larger than the payrolls number, increasing 2.43%. This amounts to approximately 27,000 jobs per month. This number is not plotted on the first graph for obvious reasons - the lower range of the scale would expand dramatically with no added value to the discussion.

An article about a month ago discussed the "burden" of unemployment. This has led me to take on a project to determine how to relate employment to other factors in the business cycle. Some of the results of this project will be published in the coming weeks.


Disclosure: No stocks mentioned.