The general tone of the press coverage in response to the employment report was that this recovery is particularly weak and that job creation has been awful. The question, then, is: “Compared to what?”
Well how about the last two recessions? We don’t yet have an “official” end to the Great Recession as scored by the NBER, but the general consensus of economists is that it ended in July 2009. That is when several key indicators started to turn up, and was also the start of the third quarter, which was the first quarter to show positive GDP growth.
Thus, including July 2009, there have been 13 “post-recession months” that we have data on job creation for. Unlike the previous two post-recession periods, this one coincided with the every-ten-year census. Therefore, it makes sense to focus on private-sector job creation rather than total jobs.
The graph below shows the path of private-sector job gains and losses in each month following the end of each recession (including the month that the recession ended). To get a feel for what might lie ahead, I have included four additional months of data following the last two recessions on the graph. The second graph is the cumulative job losses over the period.
In the 13 months following the end of the 1991 recession, (blue line) the economy lost a total of 498,000 jobs. In the 13 months after the 2001 recession, (pink line) it lost a total of 1.323 million jobs. Over the last 13 months, (yellow line) the economy has lost a total of 338,000 private sector jobs. If one argues that the month the NBER dates as the end of the recession is really still part of the recession, then the total job losses over the subsequent 12 months are 332,000 for the post 1991 recession period, 980,000 for the post 2001 recession period, and a loss of 41,000 private sector jobs over the last 12 months.
The prior two recessions were very mild affairs relative to the Great Recession. Yet so far, the recovery in private sector jobs has been far stronger than it was following those two downturns.
Without question, there needs to be more job creation. People are hurting and want to find jobs. I have argued over and over again that we need more fiscal stimulus to do that. The consumer was deeply in debt before the crisis, having used the run-up in house prices to extract equity, and when the value of his house fell his personal balance sheet was destroyed and now needs to be rebuilt. That means paying down debt and saving more, not new spending.
That reduced overall demand and resulted in lots of idle capacity. With lots of equipment sitting idle, businesses see little reason to build more. With lots of vacant offices and storefronts, why put up more? That depresses demand even more.
The only thing that is left is for the government to help prime the pump and cushion the downturn. Given the scale of the problem, $800 billion spread over three years simply was not enough. Just because a garden hose was not able to put out a roaring wildfire being pushed by Santa Ana winds would not lead one to conclude that water will not put out a wood-based fire.
The bubble in the 1990’s was based on overinvestment, particularly the resources put in place to stave off problems from the largely illusory Y2K problem. Investors bid up the value of firms like Cisco (CSCO) to absurd heights, extrapolating the growth they were showing into the infinite horizon. The Internet backbone that was put in place during those years was productive capacity that increased the country’s potential.
The bubble leading up to the Great Recession was based on firms like Toll Brothers (TOL) building small palaces far from where people work. Those McMansions are essentially consumption, even though the building of them counts as residential investment. It is just consumption that lasts a long time. It is not the sort of investment that will lead to further growth or increased output. Furthermore, when the housing bubble started, it was not like the country was particularly ill-housed.
However, is it too much to ask the press to have just a little bit of historical perspective when reporting on the economy? It is not like this data is some sort of state secret — it is available for free on the St. Louis Federal Reserve website here if anyone wants to check out the numbers for themselves.
Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market beating Zacks Strategic Investor service.
