The Odd Recovery

Odd_chartgraphic

graphic courtesy of NYT

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Is this recovery one of the best or one of the worst in the post-World War II era?

That’s the question great Floyd Norris asks in a column in today’s NYT.

With the unemployment rate down to 4.7 percent, this recovery is 2nd only to one previous cycle (1965) for the lowest post-recession unemployment rates. Norris notes:

"The low unemployment rate has come about despite a slow rate of job creation. At this point after the previous nine recessions, there were an average of 11.9 percent more jobs in the economy than there had been at the end of the recession."

We’ve discussed the reasons for why we have such low Unemployment — people dropping out of the Labor force (NILFs) — in the past. And that’s before we even get to the marginally attached workers (see Rosy Jobs Rate Has Thorny Underside). The column directly refers to these NiLFs:

"The decline in the unemployment rate reflects the fact that fewer of
those without jobs say they are looking for work, as is required to be
counted as unemployed."

We also know that buried in the Household Survey (which measuress unemployment) is one of our all-time favorite fibs, the Self-Employed Work-at-Home Contractor. Technically, these people are counted as employed in the Household Survey, but we know the vast majority of them are merely saving face, claiming to be working — but hardly are.   

Its not just the unemployment picture that is so unusual. On top of the low unemployment levels, this recovery has created surprisingly few new jobs. As Norris notes:

"So far, there are just 3.5 percent more jobs than at the end of the last recession. That is less than half the lowest of the nine previous moves — a gain of 7.6 percent in the period after the 1953-54 recession. And that figure was held down by the fact that another recession, in 1957-58, had taken place by then."

By any measure, this recovery has created the fewest jobs of any post WWII recession recovery cycle. And as we have said too many times to count, its becasuse the frame of reference most economists use is wrong.

This isn’t a typical post WWII recession recovery — this is a post-Crash recovery.  They are fewer in number and dramatically more severe than most people realize. 

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Source:
The Odd Recovery: Unemployment Is Low and So Is Employment
FLOYD NORRIS
NYT, September 2, 2006
http://www.nytimes.com/2006/09/02/business/02charts.html

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What's been said:

Discussions found on the web:
  1. Robert Coté commented on Sep 2

    “[T]his recovery has created surprisingly few new jobs.”

    Correction:

    This recovery has created surprisingly few new jobs for workers in the US.

  2. eightnine2718281828mu5 commented on Sep 2

    And shouldn’t Bush’s economy be downgraded considering that the results are based on federal deficits and federal monetary policies?

    Using the levers of government for this purpose is fine if you’re of the openly socialist bent, but the administration flits between photo ops, fund raisers, and Fox news shows claiming it’s all due to their wonderful ‘free market’ ideology.

    ‘Helicopter Ben’ couldn’t have done a better job himself.

  3. eightnine2718281828mu5 commented on Sep 2

    Republicans are the Uri Gellers of economic policy; they may tell you it’s all free market goodness, but if you watch their hands very closely…

  4. Bob_in_MA commented on Sep 2

    “This isn’t a typical post WWII recession recovery — this is a post-Crash recovery.”

    Barry,

    I’m not sure what you mean by that. That the slow growth in jobs is due to the loss of equity in the stock market crash?

    I think this situation is really unlike anything else we’ve been through. You have the weakening of an asset bubble, a jump in energy prices, a huge current account deficit plus a large budget deficit, a negative savings rate, the potential for a financial debacle due to risky mortgages and risky bonds underwriting them, wages unable to keep up with inflation…

    Has there really been a comparable time?

    It seems a little wrong headed to me for people to keep looking for a pattern in an incredibly brief time span, the 60 years since the Second World War. Have we really seen it all before? Seems pretty unlikely.

  5. JGarcia commented on Sep 2

    Wow…how do you guys really feel?

  6. JGarcia commented on Sep 2

    Reuters

    Future Inflation Gauge Eases
    09/01/2006
    NEW YORK, Sept 1 (Reuters) – U.S. inflation pressures fell in August due to lower commodity prices, slower growth in home loans and faster vendor performance, a report showed on Friday.

    The dip in inflation pressures was offset only partly by slightly higher moves in interest rates and jobs growth.

    The Economic Cycle Research Institute’s U.S. Future Inflation Gauge, or USFIG, which is designed to anticipate cyclical swings in the rate of inflation, fell to 123.1 in August from 124.0 in July.

    “While the USFIG is clearly below its October high, it has not dropped decisively. Thus, underlying inflation pressures have ebbed somewhat since the fall, but remain elevated,” said Lakshman Achuthan, managing director for ECRI.

    The October 2005 level was 126.5, its recent peak, Achuthan said.

    The index’s annualized growth rate, which smooths out monthly fluctuations, fell to negative 0.7 percent from a downwardly revised 1.1 percent in July. The growth rate was originally pegged at 1.7 percent.

  7. Jerry V. commented on Sep 2

    Isn’t a large part of the low job creation issue during this recovery related to the massive productivity-increasing tech investment that took place prior to the recession? If all of that past investment allows producers to expand production during the ensuing recovery, without hiring as many workers, why hire them? Just asking.

  8. JGarcia commented on Sep 2

    Great point Jerry, and I agree. We are seeing another leg coming. Capex is picking up.

  9. eightnine2718281828mu5 commented on Sep 2


    Capex is picking up.

    I work in the consulting division of a Fortune 50 tech firm; you must be looking at different numbers than my organization is seeing.

  10. eightnine2718281828mu5 commented on Sep 2


    massive productivity-increasing tech investment

    If I lay off American engineers and hire Asians to do the same job, do you think productivity goes up or down?

    (Not arguing against outsourcing here, just saying that capex spending isn’t the only way to raise productivity.)

  11. eightnine2718281828mu5 commented on Sep 2

    And re outsourcing; do you think that doubling the price of our houses in the US makes our workforce more productive/competitive vis a vis our Asian partners?

  12. Bud Hovell commented on Sep 2

    QUOTE: “The decline in the unemployment rate reflects the fact that fewer of those without jobs say they are looking for work, as is required to be counted as unemployed.”

    I believe the headline unemployment number simply drops all workers not employed after a year, whether or not they are still looking.

    Also, of course, anyone with any kind of job is counted “employed”, and any job, even if marginal part-time work, is counted as a “job”. If one person has several such “jobs”, they are each counted as a job. If all jobs were converted to equivalent FT employment, I suspect the difference in reported “jobs” would be very significant.

    As an example of the chicanery which lies behind unemployment numbers, consider:

    “The Clinton administration also reduced monthly household sampling from 60,000 to about 50,000, eliminating significant surveying in the inner cities. Despite claims of corrective statistical adjustments, reported unemployment among people of color declined sharply, and the piggybacked poverty survey showed a remarkable reversal in decades of worsening poverty trends.

    “Somehow, the Clinton administration successfully set into motion reestablishing the full 60,000 survey for the benefit of the current Bush administration’s monthly household survey.”

    http://www.shadowstats.com/cgi-bin/sgs/article/id=341

    When you are in charge of manipulating the numbers however you want, you CAN put lipstick on a pig, and most economists will gladly kiss it.

  13. Mark commented on Sep 2

    “Capex is picking up.”

    What figures show that? The recent numbers out do not show that at all. In fact, they show that the whole notion that capex is about to step front and center is a myth so far.

  14. JGarcia commented on Sep 2

    The guy from Thompson Financial says different. I don’t (yet) have a link, but CNBC ran a spot featuring him and their work on that. His work said it is.

  15. eightnine2718281828mu5 commented on Sep 2

    Consumer spending is 70% of the economy; government spending must be about 15% so that puts business at 15%.

    So lets’s say business capex is 20% of business spending (probably optimistic). That puts capex at about 3% of spending. Let’s say capex is up 30% (again, being optimistic).

    So a capex ‘boom’ adds 1% to spending; that’s gonna compensate for a slowdown on the consumer side?

    Really?

  16. Blissex commented on Sep 2

    «Consumer spending is 70% of the economy; government spending must be about 15% so that puts business at 15%.»

    Uhm not so fast. The government raises about 30% of GDP and spends almost 35% of it.

    Business (and government) investment also has a multiplier effect…

    Anyhow, one could interpret ”capex” as capital exports or capital expenditure. Perhaps capital exports are booming. :-)

  17. Blissex commented on Sep 2

    «Isn’t a large part of the low job creation issue during this recovery related to the massive productivity-increasing tech investment that took place prior to the recession?»

    Uhmmm, this is not something that can just be stated. There have been productivity increases, but whether they are tech related is very much an open question. Some guy estimated that 75% of productivity increases have happened in retail (that is, Wal*Mart) and this could be tech related, but it could be just economies of scale.

    «If all of that past investment allows producers to expand production during the ensuing recovery, without hiring as many workers, why hire them? Just asking.»

    Well, according to neoclassical Economics supply creates its own demand :-) (Say’s Law) so the savings on all those displaced workers would generate more demand and they would be hired again. Unless of course those savings are being invested abroad or in imports, in which case those jobs are gone, gone. :-)

  18. eightnine2718281828mu5 commented on Sep 2


    Business (and government) investment also has a multiplier effect…

    Increases/decreases in personal spending also have a multiplier effect

  19. Blissex commented on Sep 2

    «This recovery has created surprisingly few new jobs for workers in the US.»

    Indeed, and it has created a large number of middle and working class jobs in China and India, as well very affluent people in those countries and the USA itself, those that are profiting from the plummeting average cost of labour.

    The level of USA capex in China is very high and has generate an export led boom so large that I am reading in Newsweek’s sep. 4th issue in “China’s Wealth Woes” that the Chinese government has been forced to sterilize part of the flow by accumulating 1 trillion dollars of reserves (much in US treasuries) and considers it a threat to economic stability:

    http://WWW.MSNBC.MSN.com/id/14535192/site/newsweek/

    «warned the head of the National Bureau of Statistics, Qiu Xiaohua, last week. “It is fair to say that China is actually fighting a game against worldwide speculative capital … If not handled properly, this will damage the national interest and endanger economic security.”»
    «”This will be the sixth successive year in which investment rises more rapidly than the underlying economy,” says Nicholas Lardy,»

    This has probably going to have profound influences on stockpicking, as I mentioned some time ago, for example:

    * Companies that are going to do well are: domestic companies that sell branded products to the very affluent, domestic companies that sell generic products to the poor, foreign companies that sell anything to the rapidly growing foreign middle classes.

    * Companies that are going to be squeezed: domestic companies that used to sell mass branded products to the domestic middle classes.

  20. Mark commented on Sep 2

    Re: Capex

    Ah, CNBC had a guy on who said it. I see. Do you know how utterly ridiculous that sounds?

    From Econoday re GDP report:

    “Second quarter real GDP was revised up to an annualized growth rate of 2.9 percent from the initial 2.5 percent estimate for the second quarter. The consensus had expected an upward revision to 3.0 percent. The upward revision was primarily due to upward revisions in durables PCEs, nonresidential structures, inventories, government purchases, and exports. Partially offsetting these were downward revisions to business investment in equipment & software and residential investment as well as a small upward revision to imports….”

    So no capex boom there.

    Or how about Bank Credit Analyst:

    http://www.bcaresearch.com/public/story.asp?pre=PRE-20060825.GIF

    No boom there either.

  21. Ddrich commented on Sep 2

    From ftp://ftp.bls.gov/pub/special.requests/lf/aat1.txt, growth of 18M in population has occurred over the last six years with about 1 in 2 new people entering the workforce pool (9.952M) while not quite 8 of those 9 are employed today (8.242M). Put another way, only 82% of new workers during the Bush administration have jobs, or an alternate would be that in 1999 64.3% of the eligible workforce was employed & 2005 found only 62.7%. If you consider Clinton left with what? … 4.8% – 5.2% (can’t remember this second) and add this purely population factor in, it looks like unemployment is truely running in the 6.4% to 10%. We’ll find out I guess when the next recession comes.

    This doesn’t include people like me that have dropped out of the mainstream workforce, hence not counted, to work part-time contracting for cash and goods. Not a great way to get by but I’m not cut out for retail & I’m still in manufacturing. I’ll hang in there until excap or trickling down tax revenue find the margins of this economy.

  22. Cherry commented on Sep 2

    and on cue, the Midwest region fell into recession in August which was the first of the domino’s to fall. That region is completely a mess.

  23. cm commented on Sep 3

    Bud Hovell: The household survey feeds into several unemployment indicators, where U-3 is the “headline” number, and U-6 includes “marginally attached” and “discouraged” workers.

    To some approximation, the definition of unemployment is (a) not having a job, for a quite expansive definition thereof, and (b) having made specific job-finding efforts during the 4 weeks prior to the survey (e.g. including contacting employers, but excluding merely browsing job ads). It has nothing to do with receiving benefits.

    The only link to benefits I can see is that benefits recipients are or may be asked to provide plausible evidence of job search efforts compelling them to make such efforts or at least pretend so even when prospects are low. Once benefits stop, efforts to find jobs that are not there presumably stop as well.

    Otherwise please explain what the link to benefits is.

  24. Skoobz commented on Sep 3

    delta delta delta

    it seems extremely random and childish for a business report at the times to focus on a low number of unemployment and not the change from the previous unemployment level, 5.5%, to the current, 4.7%.

    A change of -.8% does not rank among the best unemployment reductions.

  25. Skoobz commented on Sep 3

    …just to add: if we use the first of the reporter’s measures of a recovery’s success — the plain old unemployment number — then a reduction of say 99% unemployment to 10% unemployment would register as an utter failure. we know however, that going from 99% unemployment to 10% in a single recovery would be unanimously lauded as an economic miracle.

    all this unemployment-rate-as-single-indicator stuff is really empty, knuckleheadish reporting. i’m suprised it gets published in the times.

  26. JGarcia commented on Sep 3

    «Isn’t a large part of the low job creation issue during this recovery related to the massive productivity-increasing tech investment that took place prior to the recession?»

    >>Uhmmm, this is not something that can just be stated. There have been productivity increases, but whether they are tech related is very much an open question. Some guy estimated that 75% of productivity increases have happened in retail (that is, Wal*Mart) and this could be tech related, but it could be just economies of scale<< Bliss..."this is something that cannot be stated"(?) you must be joking -- you might consider (one example) the productivity created by wireless networking applications...wifi, etc. Don't you think these tech advances have made work easier and more efficient? Do I really have to list the obvious examples? Military, education, healthcare, financial services, etc...

  27. Mark commented on Sep 3

    Aren’t we about to see whether the inimitable Mr. Nenner is about to make it five in a row? September 4-5 was his call for this cycle top unless anyone has heard something different recently.

  28. Geoff commented on Sep 3

    jgarcia…dont forget that all those lovely wireless applications you tout basically keep us tethered to our work almost every hour we are awake…but guess, what, those hours we spend dont get counted – so sure, it looks like a productivity miracle. But just ask anyone about how many hours they log now with all this technology – i doubt youll find anyone who doesnt realize they work many more hours, at an effective hourly pay reduction.

  29. donna commented on Sep 3

    “Has there really been a comparable time?”

    Yes, but not here in the U.S. ;^)

    If you look back into historical times at other “empire” economies, you’ll see all these things. Check out “Rise and Fall of Great Empires”, for instance….

  30. donna commented on Sep 3

    And oh, so the Chinese now have production capability, a ready market, and lots of money.

    What do they need us for, again? ;^)

  31. Skoobz commented on Sep 4

    “And oh, so the Chinese now have production capability, a ready market, and lots of money.

    What do they need us for, again? ;^)”

    This is a fallacy. The foreign money you point to is central bank reserve surplus. It’s not even that much on a per-capita basis when you take that number and divide it by the number of people that live in China.

    China does not have a ready market at all, if you’re referring to a self-sufficient consumer economy. Chinese domestic demand is just not there yet. China is a big country and there are some rich people, but i’ll take a stab and say that 90% of the citizens live well below what we consider to be the American standard of “the poverty line.” For example, $2000 USD a year is a great salary for high-end service-industry workers in China’s major cities. This is 1/10 -1/20 of what service workers get paid in NYC.

    And China’s young workers are the same as their United States peers: they do not like to save money, instead they choose to live paycheck-to-paycheck. I just had a dicussion over dinner with a young government official about this last night.

    The Chinese need us a lot more than we need them. Their manufacturing sector’s profit margins are thin. They need us to buy their goods more than we need them to produce cheap goods. The reason: someone else will make cheap good eventually…maybe India, Tanzania, Vietnam. Cheap labor is easy to get, rich trading partners much more difficult.

  32. muckdog commented on Sep 5

    So if people are dropping out of the workforce because they’re too darn frustrated to look for work, what are they doing in the meantime? Playing XBOX 360 Madden NFL ’07 on their big screen TV? Hanging out at Starbucks sipping non-fat soy decaf no-whip double-shot mochachinos? Flippin’ condos?

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