How fast will the U.S. job market bounce back?

August 27, 2009

Economist Robert Brusca thinks he knows:

Right now the job losses in this cycle number 6.9mln, a drop of 5.9% from the peak. It has taken 19 months to get these losses in place. The metrics above suggest that the forecast of how long it will take to get them back should be about 19 months as well (we’ll use 20 months since jobs are still falling). And while that is a long time – nearly two years- it is not so long to restore 6.9mln jobs. If we get them back in 20 months it will take job gains averaging 345,000 per month. Right now that seems like an amazing number. Yet, that is what history says happens. So we’ll see.

And here is a table from Brusca showing how long it took to loose jobs in previous downturns and how fast the economy recovered them:




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The only problem with looking to the past to determine the time it will take for employment to come back, is that this recession is not like those in the past. This recession is primarily the result of too much debt choking businesses, consumers, and soon enough, government. Until that debt is dealt with, primarily through default, there will not be much growth. Because the banks are insolvent or close to it, new lending, including refinancing of existing debt, is expensive if available at all. And the Fed can’t keep propping up the banks forever. Consumers remain over-indebted, and unlikely to return to prior borrowing and consumption patterns.

As with Japan, the road ahead is probably one of “muddling through” with mediocre growth and stubbornly high unemployment.

Add in rising taxes and regulation, and we could easily keep shedding jobs for quite some time, without the prospect of a vigorous recovery to bring them back.

Posted by David Herr | Report as abusive

One of the things that the bulls might be missing is that this will likely be a structural recession and not a cyclical recession. Scores of industries/businesses are being made obsolete by several forces: globalization, the Internet, and increasing scale of competitors. Let’s take a couple of examples: Blockbuster used to have thousands of locations around the country (probably still do, but off the peak) with say 10 employees per location? Add in rents paid to landlords, construction of new facilities, etc. Now here comes video on demand, Netflix, and now Red Box. The latter sells $1 movies from a kiosk. How many employees? Not many. How much rent? Not much. What’s the cost of movie? Cheap. Video on demand takes no employees. What do you have – an entire way of doing business dis-intermediated. Good for society? Well, it’s hard to prevent progress, but where do the jobs get replaced? Second example – Wal-mart, Amazon, the Internet v. the mom-and-pop retailer. Increasingly, no competition. The former have scale, information is abundant, and consumers can increasingly shop for themselves. Again, fewer jobs, commercial rents, building of properties, etc. Our society gets more efficient, but will the middle class survive. How will electric cars impact the gas station and fuel distribution businesses? And how much will the increasing government debt limit our industrial policy options and slow our educational development? See California for how education gets cut as budgets get slashed.

I hate to sound like a perma-bear, but instead of putting some money away as a nation for a rainy-day we spent, spent, spent. Now we’re up to our eyeballs in debt, and we seem to be repeating the same mistakes (see FHA 3.5% down loans and cash-for-clunkers) to try to juice the economy. So, what if the tricks and games don’t get the economy rolling on its own? Then we come back into recession (if we ever left) and have even more debt to worry about.

It seems we could be facing the fate of the Japanese and the “Lost Decade” (though they don’t seem to have actually left the deflationary spiral – see tonight’s CPI numbers).

Posted by John Thomson | Report as abusive

I think the job market will stay bad for longer than this due to human nature causing panic during bad times and over reacting. And I think the govt will continue to try to stimulate to offset this. So I feel that one of the few ways for people to protect themselves against these types of misguided govt programs is to invest in gold related assets, which will rise from the money printing by the govt to bail out and supposedly stimulate the economy as further discussed here: . All of this money printing will most likely lead to a weaker dollar and most likely a higher gold price as our currency is debased.

Posted by john turner | Report as abusive

Yes it’s true that we all were facing a bad economy during re-secession so now this is really satisfactory to know that condition will be improved shortly.

I think we must hope for the better situation.Recession time soon gets over and we would definitely have many jobs in future.