Economic Notes: The Turtle Jockey’s Arrival
3/09/2011
By Patrick O'Keefe, Director of Economic Research, J.H. Cohn
The job-loss recovery has finally ended! Which brings to mind the cartoon of a crawling turtle with a snail on its back exclaiming: “Wheeee!!!”
Total employment rose in February for the fifth consecutive month and has returned to where it stood when the recession ended in mid-2009. (Is it churlish to mention that the jobs count is still 5.4% below the pre-recession peak and even a tad less than when the century began?)
The monthly increase was due to an acceleration in hiring by private employers, which was partially offset by yet another drop in state and local government employment. Two points are of particular note:
- The private jobs recovery that began in March 2010 has been unevenly distributed. Of the net new jobs, almost half (46.5%) have been created in just three sectors (healthcare, temporary help, and manufacturing) which cumulatively comprise only one-quarter (25.7%) of total private employment.
- Despite two years of reductions in state and local government employment, it is up 8.1% over the past ten years while private employment is down 3.0% during the same period.
For the third consecutive month, unemployment fell. Most other measures of labor market distress have either stabilized or improved marginally.
February’s labor report was generally positive and suggests that the economy’s expansion is gaining momentum. But it also offered reminders of why that expansion will remain modest by historic standards.
For example, the employment rate, the proportion of the work-age population with jobs, remains near the cyclic low, still bottom-bumping after three years rather than improving as was the case in the mid-1970s and early-1980s.
The employment rate’s stagnation is attributable to the combination of the economy’s sluggish recovery and the substantial increase in productivity since the turnaround began. Recent data suggest shifts in both trends that should provide additional impetus to hiring.
But even if the rate of job growth were to double—to a pace equivalent to the highest twelve-month average since 1941—it will take three years to regain 2007’s rate.
In the meantime, there would be fewer workers and relatively less consumer spending, all else being equal.
Fortunately, all else is not equal. Workers’ earnings have trended upward since the recession ended in June 2009. Over that period, higher earnings have combined with increases in other sources of income and reduced payroll taxes to add 4.9% to after-tax incomes (an inflation-adjusted 2.2%). And on the back of those income gains, consumer spending has moved steadily upward, even as households reduced their credit card balances.
These trends look likely to continue in the near term, unless externally disrupted—for example, by soaring gasoline prices, which have recently registered the largest two-week jump since Hurricane Katrina.
The recovery from the 2008-2009 contraction has proceeded at a snail’s pace. But even snails eventually arrive somewhere, as this one did in bringing the job-loss recovery to an end.
Perhaps now it will hitch a ride on the back of something faster than a turtle.
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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.
Patrick J. O’Keefe is director of economic research at J.H. Cohn LLP. He can be reached at pokeefe@jhcohn.com or 877-704-3500.