As per our prior discussion, the chart used by the WSJ reaches conclusions unsupported by the data. Consider the chart below — it shows how past recoveries have compared to more recent ones, as well as the present recovery.
click for much larger chart
This chart shows that at some point after a recession, the economy starts to appreciably recover from the prior weakness. Whether its tax cuts, fed cuts or just the normal rhythm of the cycle, the economy always recovers eventually.
What makes the present recovery such an oddity is how weak the job recovery actually is, and how long it has taken to get back to employment breakeven.
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Special thanks to Spencer England for doing the excel data crunching and creating the chart.
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UPDATE: August 17, 2005 9:35am
Welcome WSJ readers.
Since I keep getting the same email question, let me answer it by way of pointing you to this discussion: Understanding the Post-Bubble Economy
I can’t help wondering if a recovery driven by Greenspans printing presses and supported by an ocean of debt is a recovery at all. As for aneamic jobs growth, in this age of global trade job growth is soaring. It’s just that thehis is happening in Asia and not Europe or US.
Sorry to be doom and gloom, after all it is in my interests for Greenspan to pull off his miracle. I just don’t see how he can do it.
Why the slow recovery? Because the terrorist attack against us *was* successful and accomplished exactly what it set out to do: Screw up our economy.
The Twin Towers were not a military target. They were an economic target. The attack on them successfully destroyed part of our economy.
I don’t know if there is any comparable in the history of the US, and certainly not in the post WWII period. How many successful terrorist attacks directly causing 22.7 billions dollars worth of damage http://www.ccc.nps.navy.mil/si/aug02/homeland.asp and multiple billions more in indirect costs has the US been through in the past? None that I can recall.
Stop thinking Greenspan. Think Mohammed Atta.
Another deceptive practice in the WSJ graphic: They thoughtfully included the third tax cut (implying that the tax cut was THE decisive event that stopped the bleeding.)
But what about the first two tax cuts of June 2001 and March 2002? They were supposed to create jobs too!! I guess including them in the graphic would be off message.
The chart above is misleading as a representation of the employment recovery because it dates not from the trough in employment but from the official business cycle trough. Once employment started to recover, the recovery – while not quite as strong as the average – was quite respectable, particularly when you realize that the working-age population is growing more slowly than it did during the post-baby-boom years that are being averaged.
Blackwood: You’re theory is not consistent with the Fed’s behavior. 9/11 might have caused or prolonged the recession, but if the Fed thought the post-2003 recovery was too slow, they would not be raising rates. The best you can argue about post-2003 is that the terrorists did the Fed a favor by providing a drag on the economy that obviated the need to raise rates even faster. (Maybe you could argue that terrorism, and the US response, have driven up oil prices, which have forced the Fed to tighten despite a slow recovery.)
Actually, most of the job loss during Bush Presidency occurred prior to 9/11. Check out this chart to see how the US “Employment Rate” still has a long way to go to get back to breakeven:
http://research.stlouisfed.org/fred2/series/EMRATIO/11/10yrs
Welcome to the Bush Economic Trough…
This chart shows the massive job loss immediately following Bush’s inauguration in January 2001 much better:
http://www.economagic.com/em-cgi/charter.exe/fedstl/unemploy
Welcome to the Bush Economic Trough
Zorp and DeadDog: I’m sympathetic to the idea that Bush’s policies leave much to be desired, but it’s kind of hard to blame him for what happened to employment immediately after his inauguration, unless you think the anticipation of his subsequent policies was to blame (or if you think businesses secretly dislike the Republicans).
Blackwood,
The economic cost of 9/11 was about what we see with a big hurricane or a season of smaller ones. Hurricane Andrew caused about $27 billion in damage in 1992. In 2004, four separate hurricanes caused an estimated $41 billion in damage in little more than a month. You can see similar costs associated with droughts and flooding that vary widely from year to year. The economy can absorb this kind of damage without missing a beat. Arguably, cleaning up all that damage should stimulate more hiring rather than cause job losses.
knzn, the root cause for the sudden jump of 5,000,000 unemployed persons from January 2001 to September 2001 can not easily be explained in a short post such as this. But what is clear from the above chart is that the attacks of 9/11 had the effect of steming the job loss, not adding to it as many Republicans would have you believe. Here is the chart again:
http://www.economagic.com/em-cgi/charter.exe/fedstl/unemploy
Is there an economic cycle related to presidential elections? Certainly. It’s well documented, well studied and there’s plenty of theorists as to why it happens: Election workers now unemployed, economic paralysis while companies wait to see which way the new government will lean, government contractors holding back on spending unsure if their government contracts will be cut or not, etc. etc.
My only point is that usually the post-change-of-president economic slowdown starts to recover after 10-11 months. The timing of the September 11th attack was placed for maximum economic damage: They waited out the usual post-presidental economic slump and hit the US economy right when it would usually start recovering, extending the hardship out for an even greater length of time.
Picture the same attack happening in January 2000 with the market at a high instead of September 2001 –it’s questionable if the attack would have even have pushed us into a recession at all during those high frothy days.
By waiting for the tail end of one of the most predicable economic cycles of the US economy known (the presidental election economic cycle), Atta’s masters increased the economic damage even further.
>Hurricane Andrew caused about $27 billion in damage in 1992.
Sorry, while the dollar amounts are the comparable, I don’t see a hurricane damaging evacuated homes in Flordia and killing a 26 total of mostly retirees having the same effect on the national economy as an attack on the finacial center of the nation that kills thousands of highly paid specialized technicans and leaves the entire nation paralyzed as to where the next strike will happen.
Perhaps the most effective shock of the September 11th attacks was that Americans naturally assume that hurricanes only pass once, and lighting never strikes twice. But here it did. In fact, it struck four times. And our government was helpless to stop it throughout the entire day.
Blackwood – yeah, “paralyzed”…flight 93 passengers make you the troll.
The most “unbiased” analysisof employment in recoveries relates to productivity. In the old days, 1960-74 productivity growth averaged about 66% of real gdp growth. In the low productivity 1974-94 era productivity growth was about 50% of real gdp growth.
Since 1995 it has been almost 90% of real gdp growth.
This implies that a one percentage point increase in real gdp use to generate about a 0.33 % increase in employment, jumped to 0.5%, and has now fallen to 0.1% increase in employment for each 1.0% growth in real GDP.
The real political issue is that no one is willing to recognize the true picture — as the above coments show. We are now in an environment where one good — high productivity — generates one bad — weak
employment. Since everyone is wearing such idelogical blinkers no one is talking about policies that would address this situation. Moreover, it implies that the recent strength in employment reflects more a slowdown in productivity more then better growth.
Isn’t this a commentary on the increasing regulatory and health care costs layered on companies looking to hire? I think its a problem not so much that the economy is so bad, but of the increasing worker benefit costs.
No.
Blackwood: “…an attack on the finacial center of the nation that kills thousands of highly paid specialized technicans and leaves the entire nation paralyzed as to where the next strike will happen.”
Paralyzed? I was delivering pizzas that day. My day went on just as usual, in fact somewhat busier delivering to people who were so wrapped up in watching the news that they couldn’t be bothered to feed themselves. So went the day for everybody I know. Business didn’t shut down. Out here in Midwest smalltowns, we might not have known where the “next strike” (if any) would be, but we sure as hell knew it wasn’t anywhere near us!
By the way, that “financial center” was largely empty, as the rent was too high to be worthwhile. That’s why there will never be a full replacement of the Towers: they had outlived themselves.
Blackwood: “Perhaps the most effective shock of the September 11th attacks was that Americans naturally assume that hurricanes only pass once, and lighting never strikes twice. But here it did. In fact, it struck four times. And our government was helpless to stop it throughout the entire day.”
People who live on the hurricane coast know that not only do hurricanes strike twice, they strike over and over. As a former resident of Key West, Virginia Beach, & Houston, I’m well aware of the repetitious nature of the beast.
Spencer,
back in June ’03, I talked about The New “Productivity Paradox”
http://bigpicture.typepad.com/comments/2003/06/the_new_product.html
My expectations at that time was that productivity gains would help lead to a very weak job creation during the post recession recovery.
That was the motivation, IMO, for excessive Fed cuts, despite what I noted at the time: “Any rate cut will be a near-term positive for the markets, but could lead to unintended consequences. ”
I never expected that piece to be so prescient . . .