Wikinvest Wire

Jobless recoveries - a recent development

Friday, November 06, 2009

Writing in this morning's WSJ Ahead of the Tape column($), Mark Gongloff observes 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.

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.
IMAGE 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.

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Anonymous said...

The difference is ~20% difference in Fed funds rate. Pushing it close to 20% triggered that recession and so easing it reduced unemployment. You should now be blogging about job-loss recovery and not job-less recovery. That is where we are if you exclude govt jobs created thus far.

Anonymous said...

Jobs came back quickly in the past because GDP grew faster. 4 1/3% in the 50s, almost 5% in the 60s. Then the printing machine was put into high gear, and rates fell with each succeeding decade. Not only was debt was piling up, but savings increasingly had to be imported from overseas.

Savings is the equivalent term to capital formation. No savings, no capital formation. No capital formation leads to a static GDP. Savers have been punished so long that they stopped buying capital goods with their savings.

Importing savings from overseas is not an acceptable substitute for domestic savings. Overseas savers have no interest in investing in local small businesses, which produce most new jobs. Overseas savers also have little interest in promoting competition for their own countries' most profitable industries. Jobs are not there, except for labor intensive service jobs that can't be exported. This leads to very high debt levels, and no way to export to pay off the debt.


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