This week an unemployment piece was posted by Invictus at The Big Picture comparing past recessions with the conclusion:
It seems to have been forgotten that unemployment did not peak until 19 months after the November 2001 trough and 15 months after the 1991 trough. In the current recovery, if we do not drift above the previous high of 10.1 percent (Oct. 2009), we will have peaked four months after the recession ended. The table below tells the story:
Recession Ends Unemployment Peaks Months Nov-1982 Dec-1982 1 Mar-1991 Jun-1992 15 Nov-2001 Jun-2003 19 Jun-2009 Oct-2009 * 4*
*Remains to be seen, but is the current reality.
This blog continued arguing that unemployment, put in perspective, was recovering quicker than two of the prior three recessions – and included the following St. Louis Fed graph which indexes the unemployment rate to 100 at the end of each recession to visually demonstrate this point.
Click on graphics for larger images.
To be fair to Invictus, he did show the depth of the employment hole in another part of his post, but it is a fact that we feel needs further emphasis. The unemployment holes in the last two recessions were much shallower than this time, which has more in common with the 1981-82 recession and downturns before that. When that is recognized not much comfort can be gained from the above graph. The true nature of the employment situation is reflected by the widely quoted graph from Calculated Risk:
Context needs to be added to this argument. Many still believe unemployment has some direct correlative relationship with employment. This relationship has been decoupling beginning in the 90’s.
The problem is that the word “unemployment” has lost its meaning. What exactly is an unemployed person. Strictly speaking, being unemployed is someone who is not employed. Unemployed includes children, students, spouses of employed persons who choose not to work, and retirees. Unfortunately, this table ignores graduated students looking for work, people working part-time who want to work full time, and people who have given up looking for work (as there is no work for them in the area they live or with their qualifications).
The only fair way to look at employment is to compare the ratio of the people employed to the population. The graph below uses private sector non-farm employment – and shows how the ratio between private non-farm employment and the March 2001 peak in employment has declined.
The above graph is one that adds additional information to the Calculated Risk graph. Simply put, private non-farm employment has NEVER recovered from the 2001 recession, and now we have lost even a larger percentage due to the Great Recession. Instead of unemployment peaks, we should be discussing employment recoveries.
U.S. population has continued to grow in the 21st century. The percentage decline in the above graph (~4% from the March 2001 peak) expands to ~10% when normalized to adult civilian population growth. This is seen in the following graph. Note: When normalized to population the employment peak occurred in March 2000, a full year earlier than the unnormalized peak.
Employment has not fully recovered yet this century. Looking at unemployment peaks are interesting only to academics. Looking at employment rates are what Joe Sixpack is interested in seeing.
The initial unemployment claims data released this week declined slightly but are remaining in the elevated range above 450,000 where historically real jobs growth does not occur.
Click on graphics for larger images.
Unemployment is a word without context. Employment / population ratios have context. When we recognize that we have had a decade of employment decline accompanied by a gain in population growth, the magnitude of the problem becomes clearer. The hole is deep!
Economic Picture this Week
Next week Econintersect will be releasing its November economic outlook. The non-monetary data received this week tentatively paints a continuing slowing of the economy. ECRI’s Weekly Leading Index (WLI) improved slightly from -7.0% to -6.8% suggesting six months from today the economy will be slightly worse than today.
Econintersect’s analysis of economic releases and other headlines this past week:
|Weekly Economic Release Scorecard:|
|Demographic Time Bombs||Large factor in our economic future|
|Housing Bubble||Many factors have been put forward to explain|
|China & Germany Trade Surpluses||May continue for a few more years||Most likely these imbalances will come to an end|
|Philly Fed Business Conditions||Steady||New Orders and Backlog still declining|
|Conf. Board Leading Indicator||Slowing Growth||Matches Econintersect’s October outlook|
|Mortgage Securitization||Holes in the mortgage process|
|Socialist Economies Outgrowing U.S.?|
|Uncertainty and doubt||How this plays into consumer behavior|
|New Home Construction||Up slightly||Down except apartments|
|China / U.S. Trade Imbalance||Will happen through currency adjustment, or inflation in China and deflation in USA|
|Industrial Production||Down slightly||Flat|