Monday, October 5, 2009

Redefining the Phrase "Jobless Recovery"

The first use I can find in the NY Times of the phrase “jobless recovery” comes from an article dated October 12, 1991. Some – emphasis on that word – of the similarities between then and now are striking:

"The consumer did come out of the closet in the spring," said Nicholas Perna, chief economist at the Connecticut National Bank. "The problem is that they ran straight into a jobless recovery."

The economy has generated just 224,000 jobs since April. Many large companies as well as state and local governments continue to announce cost-cutting measures that include layoffs, and few executives expect the kind of rip-roaring job growth that followed the deep 1981-82 recession.

"The growth in the economy has come mostly from rising productivity, not new jobs," Mr. Perna said.

That has kept consumers who have held on to their jobs feeling anxious. Confidence surged in March after the Persian Gulf war ended but "has been moving sideways ever since," said Richard Curtin, director of the Consumer Survey Research Center at the University of Michigan.

Lacking the Cash

And incomes, which have been inching up, have not recovered from the recession yet. On average, each American consumer lost about $450 in after-tax income in the recession and has recouped just $100 of that loss, according to David Kelly, an economist at Data Resources Inc. "The glass is just one-quarter full," he said.

So far, consumers have been squeezing their savings, freeing up ready money by paying off debt, and benefiting from lower inflation. But spending cannot continue to climb much faster than income for long. So with job growth likely to stay anemic, Mr. Kelly said he expected consumer spending to rise at just a 2 percent rate in the fall.

Employment peaked in June 1990 at 109,817,000. It troughed 11 months later at 108,196,000, for a loss of 1.6 million jobs. It returned to the previous peak 21 months later, in February 1993, when it hit 109,967,000. In other words, it took 32 months from start to finish to re-attain the previous peak.

Fast forward to the 2001 jobless recovery. Employment peaked in February 2001 at 132,530,000. We then did a slow bleed for some 30 months, hitting a trough in August 2003 at 129,822,000, for a loss of 2.7 million jobs. 18 months after that, in February 2005, we re-attained the previous peak as we got back to 132,720,000. All in, reaching the previous peak took some 48 months, making the last recession’s recovery even more jobless.

As of last Friday’s jobs report, we have now lost some 7.2 million jobs since the peak in employment that we hit in December 2007. We’re now 22 months in and still losing 263,000 jobs/month.

Via FRED, I have taken the average jobs numbers for the previous two “jobless” recoveries and overlaid our current recession. In addition, I have added an employment forecast provided by a friend who works as an economist at one of the country’s Federal Reserve Banks (frankly, I think he’s a bit optimistic, but we’ll go with it for now). Here’s what we see (click for larger image):

This chart scares me. (Lots of charts I make scare me; I don't know why I keep making them.)

The first thing that jumps out at me is how severely the labor market is contracting relative to the last two recessions. Second, though I think my Fed friend is a good economist, I do have a hard time buying into his forecast, which essentially calls for positive NFP prints starting next month and continuing for the next 14 months (and beyond).

Now, 36 months takes us to December 2010, at which point we will still be woefully behind the average jobs recovery of the last two recessions. I'd guess we'll still be behind the eight ball in December 2011, fully 48 months after the onset of the recession.

On a very related note, there was nothing -- nada, zilch -- in last week's employment report that hinted of recovery in the labor market. The headline number was worse than expected. Had a number of folks not dropped out of the labor market, the unemployment rate would have breached 10%. The most all-inclusive measure of labor market weakness -- the U-6 report -- climbed from 16.8% to another new record, 17%. And it's hard for me to buy into the argument that the report wasn't as bad as it looked because 53,000 of the jobs lost were government employees. Do those folks not shop? Not have to put food on the table, gas in the car, pay the mortgage?

And I'd be remiss if I didn't point out that in last Friday's release, the BLS announced wholesale backward-revisions:

"The preliminary estimate of the benchmark revision indicates a downward adjustment to March 2009 total nonfarm employment of 824,000 (0.6 percent)."

That's 824,000 more jobs lost than the 7.2 million we've alredy recorded, meaning that when these revisions are incorporated in a few months, the total for the period will be over 8 million, making the chart above all the more scary. Barry Ritholtz has more on the farce that is otherwise known as the Birth/Death adjustment.

On another related note, the Wall St. Journal reported on Friday:

Consumer bankruptcies topped one million for the first nine months of this year, the highest point since the system was overhauled in 2005.[...]

"Bankruptcy filings continue to climb as consumers look to shelter themselves from the effects of rising unemployment rates and housing debt," the institute's Executive Director Samuel J. Gerdano said.

My ongoing fear is that any semblance of recovery is going to be very elusive absent the participation of the consumer.

I've not seen a green shoot in a while, and I'm becoming fearful now that Cash for Clunkers is gone, the first-time homebuyer credit is going to (possibly) expire, and we got a scrape-along-the-bottom series of non-Armaggedon-like numbers, we've got nowhere to go. The stock market may -- stress "may" -- have also come to that realization over these past couple of weeks. It would appear the burden may have shifted to the green-shooters for now.