Recession at half time?

August 7, 2009

Christopher Swann— Christopher Swann is a Reuters columnist. The views expressed are his own —

Recession historians on Wall Street often consider a downturn over when job declines fall to half their peak.

The July employment report, with its revisions, takes us past this milestone. The numbers were better than expected in almost every respect. There was even a tick up in hours worked, especially in manufacturing. The output component of the recession has probably already ended.

Even so, the labor market is likely to remain grim for a very long time. That a decline in payrolls of 247,000 should be taken as good news is an indication of how bad things have become. Such falls were close to the average in most postwar recessions, not an indication that the worst was over.

In the recession of the early 1980s, the peak job loss was 389,000. In this recession it has been around 740,000. So we are still on a different trajectory. The United States may continue to bleed jobs at a fast pace for some time to come.

There has seldom been more slack in the labor market. Businesses have plenty of room to increase the working hours of existing employees — which have declined far faster than in previous downturns.

Part-time workers can be brought fully on board. Only then might companies add to payrolls.

After the end of the 2001 recession, it took 21 months for the labor market to fully turn around. Even the White House, which is becoming much better at managing expectations, is saying that it still expects the unemployment rate to reach 10 percent.

Once people lose their jobs, they are also spending longer out of work than in previous downturns. In the recession of the early 1980s the average spell of unemployment reached a peak of 20 weeks. Now it is at 25 weeks. A third of the jobless have now been without work for more than six months, up from 29 percent in June — both post-war records.

This is bad news for consumption, since state payouts typically cover less than half of a previous salary.

For America’s hobbled banking system the ever growing duration of unemployment is almost as ominous as job destruction itself. Few consumers have sufficient precautionary savings to continue to service debt for such extended periods once their income is halved.

Under an optimistic scenario, in which job creation rebounds to about 100,000 a month, it will still take five years to recover the more than 6.6 million jobs lost during the recession. This should keep consumer spending weak and means that the United States will remain vulnerable.

Over coming months the temptation to ease off the monetary and fiscal pedals will increase. It should be resisted. Policy makers should get used to looking at economic data in absolute as well as relative terms.


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What rubbish. Analysts were decrying a jobless recovery in the early ’90s and, by the latter part of the decade, so many jobs were being created that Alan Greenspan was being harshly criticized for not raising rates. I recall one month or possibly more when something like 500K+ jobs were created. A couple of months like that – and who’s to say it can’t happen again? – and those lost jobs will be recovered. Bears like Mr. Swann will then decry the quality of the jobs created and claim they were better in the past, or something like that. Whatever. Gloomdoomers love to paint a disastrous scenario but they are usually wrong, and not by a little bit either. Their biggest fear nowadays is not that they’ll be proven right – because history shows otherwise – but that no one will pay attention to their increasingly silly predictions as the market and the economy move on. JMHO

Posted by gotthardbahn | Report as abusive

gotthardbahn is correct. Gloomdoomers never get anything right. All those predictions by Roubini, Faber and that bear crowd about a housing bubble, a credit crisis, and a market crash will never come true.

Posted by SNS | Report as abusive

if the economy is moving on then why did we just bail wall street and the auto industry out actually the “government” our supposed saviors owns most of it now and as far as those so called booms it was based on toxic derivatives with no collateral as people are now finding out who owe more on their homes then they are worth geithner has just asked congress to up our debt threshold to 12 trillion plus one trillion is an astounding amount of debt but people that think the economy and everythings fine as long as when they put their card into the atm machine money comes out will accept increasingly higher taxes and work longer hours thats if you even have a job if the answer is throw more money at it then by default you devalue your own currency and we are supposed to believe that its getting better because home sales went up did it have anything to do with the tax incentive which by the way our future will be paying for

Posted by kainoa | Report as abusive

Dear Mr.Swan,
Good article on the above subject from you
Now market is picking up,jobless rate slow down,fear or recession is drying down are fine for some hopes.
After reading,writing comments on American economic scenes,till today,she had not come out from the shell.
What you have written here are some rays of hope.
Please write America!s export earnings,foreign exchange reserves and all like that
still,many Americans are driving out from jobs.
i came to know that,Many Asian-Americans are hesitate to come from America to their own countries,due to precommitment on house purchase loans,invisible fear of going back to America and some sorts of doubts on home receptions.
No educated people accept these temporary respite from economic drowning.
your article can be viewed purely on academic in in interests.
If you write America!s economy is back to major normal,jobs are available to Americans,smooth cash flow and like that will be welcomed by many.

Posted by krishnamurthi ramachandran | Report as abusive

While I don’t necessarily disagree w/ gotthard, I think that turning a total blind eye to how disastrous this recession is/has been is pretty foolish.

On another note. I find it quite duplicitous on the account of most Americans that decry the enormous gov’t debt when they themselves also have enormous debt. The average America has a debt that 150% the average American annual income. That is much higher than the US debt/GDP ratio I believe. If the average American feels they can handle their own way out of trouble – and that the debt burden won’t be passed on to their children, which is the favourite cry of the debt bashers – then all they must do is demand the same of gov’t. If you people actually showed up to the polls and elected people who stood for fiscal responsiblity instead of who offers yor county the most goodies, maybe we could see change in gov’t. Until then, we should still have reason to be worried about the economy, because the with households and corporate spending slashed, the good ol’ days are FAR behind and CANNOT come back until all debts are cleared or parred down to maybe 10-20% annual income. It’s simple math – if the average Joe needs to clear, say 135% of annual income, how long will that take given they only have maybe 10% discretionary income per year? With some low inflation, at least 10 years!

Posted by the Shah | Report as abusive

Maybe it is recession at half time, as the “recession” is now transformed into a huge huge huge government deficit. And I don’t think our government have any ideas to kill this deficit as we have been trained to do “wealth redistribution” instead of “wealth creation” since the dot-com burst.

Posted by Rose Eli | Report as abusive

“Under an optimistic scenario, in which job creation rebounds to about 100,000 a month, it will still take five years to recover the more than 6.6 million jobs lost during the recession.”

When we consider that there are approximately 150,000 to 175,000 new workers entering the job market EVERY month, adding 100,000 jobs a month will NOT recover lost jobs. Until the job addition rate exceeds the new worker influx rate, you’re still losing ground.

And those who are claiming that the recession is over based on things like the stock market’s rise – be aware that this is not an economic recession, where unemployment is a lagging indicator, but a financial recession where unemployment is a leading indicator. So I wouldn’t call “The end is near” until we see actual REAL reductions in the unemployment rate for at least three months, not reductions in the rate of decline.

Posted by Nofluer | Report as abusive

Good Article: One thing that stands out is the instability of our banking and business community. Seems like we can’t find the top or cannot find the bottom. Looking at this it is akin to an Alcoholic or Drug addict in highs and lows. Just pouring in money is like sobering up or cleaning up the addicts while they are working. The people running the businesses and banks need a time out to be retrained, just like the addicts need a time out of his place of residence. I do not see this happening at present.

Posted by f belz | Report as abusive

[…] The Great Debate » Debate Archive » Recession at half time? | The … […]

Posted by How do I make car rides easier for my infant? | Used Rides blog | Report as abusive

Halftime? More like Fourth-and-long…

Posted by Drew | Report as abusive

Not Halftime. Fourth-and-long for the U.S economy. Uncle Sam tosses the hail-Mary…

Posted by Drew | Report as abusive

Mr Swann – go back to school and this time stay awake. You said;

“Under an optimistic scenario, in which job creation rebounds to about 100,000 a month, it will still take five years to recover the more than 6.6 million jobs lost during the recession.”

Ummm are you aware of the fact that 150,000 to 175,000 NEW WORKERS enter the labor market EVERY MONTH? So adding only 100,000 jobs a month means you’re STILL going further in the hole EVERY MONTH and so you regain NO jobs.

This recession/depression is far from over. Since it’s not an economic recession, but a financial recession, there will be NO improvement until the broken financial system is fixed. There needs to be appropriate regulation enacted and enforced, the Criminal Enterprise Banks holding class 3 “assets” need to be shut down so the market can be cleared, and the Fed needs to mop up all that excess US Dollar liquidity that the world is now awash in.

Until these things happen, you won’t see a recovery – we’ll just hobble along, getting by and waiting for the next two elections.

Posted by No Fluer | Report as abusive