Economic Notes: Recession Ended In November (Finally)
1/11/2010
By Patrick O'Keefe, Director of Economic Research, J.H. Cohn
"Do not go gentle into that good night." ~Dylan Thomas
Later this year when the National Bureau of Economic Research (NBER) pronounces the recession over, it will designate November 2009 as the month in which it ended.
Why? Because after 22 months of job losses, employment rose in November.
Granted, the rise was nugatory (+0.004%) and due to 4,000 new government jobs (i.e., private sector employment was unchanged). But it confirms other indications of growth, such as a positive reading on third quarter (Q-3) Gross Domestic Product.
More importantly for NBER’s mavens, November’s jobs gain will allow them to declare the downturn’s end without appearing insensitive to its toll on working Americans. (The practitioners of the dismal science do have hearts, you know.)
But rather than going gentle into the night, the downturn’s impacts extended into December and employment dropped by 85,000 jobs. According to the Bureau of Labor Statistics (BLS), 7.2 million jobs have been lost since the recession began. (And BLS’s annual revisions next month will increase that total by 800,000.)
The aggregate employment drop concealed some favorable signs, however. While goods producers continued to shed jobs (as they have steadily since early 2006), private service providers added workers for the second consecutive month.
In the private services sector, job gains in recession-resistant health care were bolstered by hiring in temporary help services, which has added 166,000 jobs (+9.5%) since July. The upturn in temporary help suggests that growing demand will soon lead to hiring elsewhere in the economy. Further, rising sales should incline wholesale and retail merchants to restrain their post-holiday layoffs – which would be net positive going forward.
Both of the major components of the goods-producing sector continued to lose jobs in December. Construction employment was off by 53,000 as building languishes. Rising orders for manufactured goods have yet to translate into new factory jobs. Instead, higher demand is being met through the increased hours and hourly output of current workers. Look for increased hiring in this sector over the coming months.
The residue of recession is most evident in the BLS’s survey of households, which is conducted separately but coincidently with its employer survey.
The BLS December survey found the number of jobseekers virtually unchanged (-0.5%). The unemployment rate remained at 10% of the labor force, but spells of unemploymentgrew ever longer.
That general stability was somewhat deceptive, however. Households reported that 589,000 workers lost their jobs in December. Another 6.3 million individuals (+4.4% in December alone) were so discouraged about job prospects that they had quit looking. Had they been counted as unemployed (i.e., still actively seeking jobs), the rate would have been 10.5%.
It is encouraging that job losses in Q-4 of 2009 were one-tenth of those in Q-1. But despite the statistical improvement, the household sector has yet to feel the recovery.
Since consumer spending accounts for the bulk of final demand, the pace and durability of economic recovery will ultimately turn on the extent to which workers feel secure in their jobs – and job prospects.
While consumer spending has risen of late, the rate of increase has been tepid. The Federal Reserve’s most recent consumer credit data suggest that the plastic was left in the pocket while households paid down their credit card balances. Even so, early reports indicate that December’s retail sales were higher than last year’s level – which was, to be kind, depressed.
For economists using the criteria by which the NBER measures the business cycle, the recession ended in November (perhaps earlier). The consensus is that recovery will gain momentum over the next few months.
For those on Main Street, in the day-to-day economy where the downturn’s impacts linger, turnaround still lies in the future. Businesses and households are less pessimistic but remain cautious.
Obviously, there is considerable divergence among them all. But their views will converge as the recovery strengthens, which will happen over the first half of 2010. The recession may not be going gently, but it is going.
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The statements, opinions, and conclusions contained herein are based solely upon the author’s own studies, research, and personal experience. Neither J.H. Cohn LLP nor the author makes any representation or warranty as to the accuracy or completeness of this information. J.H. Cohn LLP and the author expressly disclaim any liability for any loss or damage which may be incurred, of any kind whatsoever, as a result of or arising from the use of any of the information contained herein or reliance on the accuracy or completeness of it.