Wednesday, October 07, 2009

When Will The "Jobless Recovery" End and When Will the End of the Recession Be Official?

It’s almost certain now that the recession probably ended sometime this summer, and an expansion is now underway. The Wall Street Journal consensus of more than 50 professional economists is for 3% real GDP growth in the third quarter, and a 2.8% annual growth rate in 2010. With that kind of growth in real output, the recession might now be over, but a couple of important questions remain: 1) How long will the unemployment rate continue to rise, and 2) When will the National Bureau of Economic Research (NBER) officially declare that the recession has ended? History might help provide answers (see chart above).

Read my whole post here at
The Enterprise Blog.

8 Comments:

At 10/07/2009 1:32 PM, Blogger atucsonman said...

Yeah, I hate reading the headlines all the time about the "Jobless Recovery." It's well known that the turn around in employment lags during a recovery. Yet one rarely sees a headline about all the positive data indicating a recovery well underway.

 
At 10/07/2009 4:31 PM, Blogger Steamboat Lion said...

Mark, good idea to label the axes on your charts unless you're trying to mislead, which I am sure you aren't. I assume the left hand axis is unemployment rate in %

 
At 10/07/2009 4:50 PM, Blogger Mark J. Perry said...

Steambot Lion: It's done.

 
At 10/07/2009 8:45 PM, Anonymous Multy said...

Not all recoveries have been "jobless". It's a recent phenomenon for the last three or four recessions. Before that, jobs recovered right at the end of the recession. One reason for increases in production without decreases in the unemployment rate is structural change in the economy. Another is that employers become far more efficient and more capital intensive. This conversion is happening sooner and lasting longer, hence jobless recoveries are worse and more prevalent.

The problem with your statement though is that the end of a recession is not deterministic. It's a value judgment of the people who are currently playing umpire. Previously these umpires would look at literally thousands of statistics and equations. Now they have it down to a few rules of thumb. GDP growth was and is the chief determinant. They also look at employment growth, industrial production, durable goods orders, and personal income less transfers.

GDP growth will be positive in third quarter 2009 only because of massive government spending. Industrial production turned up this summer, but will probably turn down again this fall. Personal income is flat. Employment growth is still negative and falling faster.

Because GDP grew in first quarter 2008, it put the NBER in a conundrum. So they used the employment peak in December 2007 as their deciding factor. But if falling employment determined the beginning, it should take employment growth to declare recovery.

It is the unemployment RATE which has lagged in recent recoveries. Employment growth has always been coincident with recovery, precisely because that's what they use to determine the end of a recession. No employment growth, no end of recession. End of story.

 
At 10/08/2009 12:39 AM, Blogger Michael said...

With all the talk of recoveries, I'd like to know why more and more companies are going back to the lay away concept.

Is it because they want to get as many dollars as they can at present value?

Is it the coming commercial foreclosures drying up credit?

Is it that more and more states are defaulting on their obligations to private businesses increasing unemployment?

 
At 10/08/2009 12:45 PM, Anonymous Junkyard_hawg1985 said...

Multy,

Great point about the NBER using total employment as the benchmark for calling the start and end of recessions. You are absolutely correct in stating that the NBER declared the start of the recession as being the peak in employment (November 2007 peak). Likewise, their call for the start of the 2001 recession was March 2001 when employment peaked at 137.783 million even though industrial production peaked in September 2000. The recession was determined to be over in January 2002 when employment bottomed at 135.701 million. When this recession started in November 2007, employment peaked at 146.665 million. In Sept 2009, employment was 138.864 million. Even though GDP will show positive growth in 3Q09, the number of people employed will still show a sharp drop (1.3 million in the quarter). We have had two positive quarters of GDP growth during this recession. Based on the numbers the NBER have used for the past several recessions, we still have not seen the end of the recession until employment starts to rise. This has still not occurred yet. Great post Multy!

 
At 10/08/2009 6:07 PM, Anonymous Multy said...

Thanks Junkyard, but let me update a few things I said from more recent data.

Nonagricultural employment is still dropping, but at a slowing rate.

Personal income less transfers is still dropping. It's flattening, but not quite flat yet.

Industrial production has risen for two months but August's rise was smaller than July's rise.

Manufacturing and trade sales (not durable goods as I said) rose slightly in July, probably due to Cash for Clunkers.

The indicators are mixed. The NBER could call the end in July 2009 if and only if employment growth turns positive in October, but that is highly unlikely. Also, industrial production and manufacture sales would have to continue their growth which is also highly unlikely.

Wait and see what commercial real estate does to banks in the next six months. Retail is already girding its loins for a poor Christmas season. State and local govenments are cutting jobs due to massive deficits. Health care job growth is even slowing.

This summer will be known as the Stalled Recovery or the Great Economic Head Fake.

 
At 10/08/2009 8:50 PM, Anonymous Roxanne said...

It can never be done. The government are full of corruptions and even on the third world countries, there are corrupt people.

 

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