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US employment tutorial 2: The present situation is unusually bad [ClearOnMoney]
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US employment tutorial 2: The present situation is unusually bad

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Commentary

US employment tutorial 2: The present situation is unusually bad

2 Nov 2009 by Jim Fickett.

The number of jobs lost each month has been shrinking pretty consistently since January, and commentators have rightly cheered this development. However net jobs are still being lost. That is, the number of people employed is still going down. In fact, this recession is now setting a new record for cumulative losses, and has almost certainly not yet hit bottom. The severity of the job market downturn, and the continuing loss of jobs, imply a slow return to a fully healthy economy.

Limiting ourselves to post-war recessions, below is a comparison of three cases:

  • The 1948 recession, which was, until Sep, the recession with the deepest overall job losses (blue)
  • The 2001 recession, which is the one that took the longest for jobs to recover (purple)
  • The 2007-2009 recession (black)

“Jobs” means the non-farm payroll count from the Bureau of Labor Statistics (BLS). Each curve in the graph shows the cumulative percent change from the month when the job count reached a peak near the beginning of the recession. The x-axis shows the number of months from this peak, while the y-axis shows the percent job losses. For each recession the curve is continued until jobs regain the pre-recession peak (or, in the case of the most recent recession, as far as data are available). (Click on the graph for a larger image.)

The blue curve is for the 1948 recession, where job losses reached about 5%. Note that for the most recent recession (black curve) losses have reached a similar level. The purple curve is for the 2001 recession, widely described as having a “jobless” recovery, because it took four years for the number of jobs to reach their pre-recession level. Job losses in the last few months have remained quite high, so it looks quite possible that for the current recession the bottom will take as long to reach (25-29 months) as for the 2001 recession.

The grey dashed curve still requires an explanation. The BLS makes their best estimate of the non-farm payrolls number, based on somewhat preliminary data, each month. Then once a year they go back and revise older numbers based on more comprehensive data. The process of revising the numbers for the period Apr 2008 - Mar 2009 has begun, and the preliminary “benchmark revision” for Mar 2009 subtracts 824,000 jobs. This is the black dot on the gray dashed curve. We have interpolated, assuming that the 824,000 adjustment can be evenly split over the 12 months ending Mar 2009, and then we have carried forward the 824,000 adjustment for following months, having no better data. In short, the gray dashed curve is a reasonable guess of what the revised data will look like when the BLS finishes their analysis. This worsens the picture significantly, though it doesn't really change the conclusion that the effects of the most recent recession on the job market are much worse than for other post-war recessions.

While the job market normally fails to fully recover until well after a recession ends, the current situation is unusually bad. This is one of the key reasons why many people, myself included, feel that talk of a quick, normal recovery (heard frequently in the last few months from stock market bulls) is misplaced. We will recover from this recession. It will take time. I hope I am wrong, but I do not expect 2010 to feel very much like a recovery.