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The phrase ‘jobless recovery’ oversimplifies the message

0 365 Market Intelligence

U.S. employment fell by 131,000 in July, the Bureau of Labor Statistics recently reported. This was less than June’s decline of 221,000, but it was disappointing nonetheless after the substantial month-to-month gains earlier in the year. From January to May, the U.S. picked up 1.0 million jobs. Employment generation has clearly stalled. There is one bit of good news: total U.S. employment on a year-over-year basis is now 0.0%; a year ago, it was -5.0%.

U.S. employment fell by 131,000 in July, the Bureau of Labor Statistics recently reported. This was less than June’s decline of 221,000, but it was disappointing nonetheless after the substantial month-to-month gains earlier in the year. From January to May, the U.S. picked up 1.0 million jobs. Employment generation has clearly stalled. There is one bit of good news: total U.S. employment on a year-over-year basis is now 0.0%; a year ago, it was -5.0%.

The bottom line is that the U.S. now stands 7.7 million jobs below its pre-recession peak level in December 2007. There is much talk about the jobless recovery. This is a simplification of the message and is misleading. The previous recovery after the dot-com collapse was also jobless for a long time. It took three and a half years for total employment to return to its previous peak.

The jobs problem can be more clearly expressed in another way. The peak-to-trough decline in total U.S. employment from early 2001 to mid 2003 was -2.0%. The peak-to-trough decline in employment in the latest recession, from early 2008 to the end of 2009, was -6.0%. In other words, based simply on the jobless rate, the impact on workers has been three times as severe.

At least one other factor has made the more recent hard times worse. Housing markets have been horrendous. In residential real estate, there has been nothing similar since the Great Depression. The spillover of weak jobs markets has meant an inability to keep up mortgage payments. Therefore, foreclosures spread beyond cheaper properties into prime locations as well.

In geographic regions where employment has firmed up, home prices may be coming back. Many high-tech firms weathered the economic storms better this time than previously and some giants in the industry are reporting record profits. Cities with a strong base of IT and knowledge-savvy workers are showing some spark. The latest S&P/Case Shiller resale indices record that San Francisco is leading the nation in year-over-year home price percentage increases (+18.3%).

In general, however, U.S. housing starts continue to be frighteningly weak. They were only 546,000 units in July. They have largely fluctuated between 500,000 and 600,000 for the past year and a half. Such a level is only a little more than one quarter of their normal figure.

A major side effect of the alarmingly weak housing starts has been a negative impact on construction employment. The unemployment rate in construction is currently 17.3%. This is easily the highest among all industry sectors. Leisure and hospitality comes next, at 11.4%. Even manufacturing, which has a history of struggling, has a lower unemployment rate at 10.0%.

In fact, employment in manufacturing has moved back up to 0.0% on a year-over-year basis for the first time since early 2006. Several other important sectors have also returned close to positive percentage changes on a year-over-year basis: retail trade (-0.4%); transportation and warehousing (-0.1%); and leisure and hospitality (-0.1%). Professional and business services is +1.4%. Year-over-year construction employment is -6.3%. A year ago, construction employment was -17.0% on a year-over-year basis. The situation is improving, but it’s a battle.  

U.S.: month-to-month total job creation
U.S.
Over the past 20 years, the U.S. economy has generated, on average, 100,000 new jobs per month or 1.2 million new jobs per year.
Data source: U.S. Bureau of Labor Statistics (Department of Labor).
Chart: Reed Construction Data - CanaData.
U.S. employment – per cent change
U.S.
Data source: Payroll survey, U.S. Bureau of Labor Statistics (Department of Labor).
Chart: Reed Construction Data - CanaData.

by Alex Carrick

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