At first glance, the job numbers of the last week seem to offer a mixed and confusing picture. On the one hand, today’s headline from the Bureau of Labor Statistics sounds like good news: the unemployment rate finally dropped below 10%, to 9.7%. On the other hand, today’s establishment survey of employment, which most of the time is a more reliable measure than the unemployment rate, still shows job change numbers that are negative. Furthermore, recent unemployment benefit claims have been discouraging.
To reach a bottom line, one must take a broader perspective. Even the job loss reported in the establishment survey for January can be interpreted more positively: it is less than 1/30th of the rate at which job losses were running one year ago, in January 2009. Refer to the graph below (which shows 3-month averages of changes in employment). The best way to sum up all the labor market numbers in recent months, both positive and negative, is they have been roughly flat: within measurement-error-distance of zero. That may not sound great, but it is a big improvement relative to what came before.
It is inconvenient, but common, that the labor market and the rest of the economy send conflicting signals.
As a member of the NBER Business Cycle Dating Committee, I get asked whether we are ready to call officially an end to the recession. Although the Committee looks at many indicators in reaching its decisions, the most important overall are measures of output, particularly quarterly GDP. GDP shows growth turning from negative in the first half of 2009 to positive in the 3rd quarter of the year, and then strongly positive in the 4th quarter. That suggests that the trough will probably turn out to have been in the middle of last year.
Beyond output, the monthly indicators that are most important to the Committee are probably those that come from the labor market. Here is how I personally read the overall picture of the labor market that has emerged recently:
- the employment loss was especially bad in this recession, whether viewed in absolute terms or relative to the output decline (8 million jobs lost, in the BLS revisions that are probably the most important news in today’s report; refer again to the graph); but
- the recovery time in jobs does not appear to be lagging behind output any more than was the case in the preceding two recessions — and perhaps less. The worst job loss this time occurred around the time of the worst negative GDP numbers – the very beginning of 2009, as opposed to waiting until GDP growth actually turned positive, which is what it took in the preceding two recessions. Yes, it is painful that labor market losses have, at best, not ended until a half-year after the end of output losses. Nevertheless, as I count, that still appears to be a shorter lag than in the famous “jobless recoveries” following the recessions of 1990-91 (job losses ended 11 months after the trough) or 2001 (they did not end until 21 months after the trough).
The bottom line is to reinforce the verdict of most economists: that the recession very likely ended sometime in 2009. At this point the main thing that the NBER Committee must watch out for is the small risk that the economy could be hit in 2010 by a sudden new downturn, as the recent contributions to demand coming from fiscal stimulus and inventory changes start to diminish; but a real double dip recession (which might in theory count as a continuation of the same recession as 2007-09) seems increasingly unlikely.