This month, May
2014, marks an important milestone for the US.
It’s the month when we will have fully recovered the job losses of the
worst recession of the post-WW II era.
Over six years of job declines and recovery, done. Behind us.
Ancient history. Pat yourself on
the back, America. Despite unprecedented
calamity and daunting headwinds – and that was just from our elected officials
– once again you did it. You deserve the
praise for your resilience. One of your
best qualities. But enough of working
the crowd...
8.7 million
jobs restored. We have officially entered our next period of normalcy. Going forward, each job
created is a new job, for a new day. That is, if
you pretend that the ~10-15 million additional jobs we needed to have been creating
just to keep up with population growth over the past six-plus years while we
were just trying to make back the 8.7 million lost don’t exist. (Because they don’t.) And that most of the jobs recreated have
thrown higher-skilled former higher-wage earners into lower paying gigs. (Boy can I relate to that one). But fear not, for the days of depressing ourselves with
facts and reality are this day behind us.
So one last
time (or at least until the next recession, otherwise known as 2018) let’s
review the last recession’s job loss-recovery period (~2008/14 in total, but I
will refer to these periods from their job loss period, in this case, ‘08/10)
versus the typical recessions of the post WW II era (11 in all, including the
last one). It's data rich, so glean what you like so you can sound real smart at the next happy hour...
In the typical recession, the duration of drawdown in jobs, or job
loss period, is a little over a year; ~12-13 months. ‘08/10 was 25 months; about twice as long. The ‘01/03 period was the worst at 30 months.
The typical recovery period of those jobs lost is about a little under a year;
~11-12 months. This is the so-called "v-shape" of typical recoveries (down and back up in about the same time). The ‘08/10 25-month loss period
resulted in a 51-month recovery,
presumptively ending in May 2014. A 4 ¼-year recovery; almost five times as long what is typical. The
next worst was ‘90/91, which took 21 months to recover, less than half the time of present
(and that was a shallow loss period).
The total loss-recovery period typically was then a little over two
years. ‘08/10 through '14 will be 6.3 years long
from entry to exit; over triple what
is typical. The next worst was
the ‘01/03 recession, which took four years in total. The only thing worse than ‘08/10 was the
Great Depression which, albeit cut short by war-time production, lasted about
11 years.
The typical amount of jobs lost as a percent of the pre-loss job base is
~2.8%. We lost 6.3% of jobs in ‘08/10;
over double. The next worst was ‘48/49
which lost 5.2% of jobs (but that one year of job loss was recouped in nine
months). Only the Great Depression was
worse, but by much more (in the zone of four to five times worse by certain
measures).
In the typical job loss-recovery
period of recessions the unemployment
rate began at ~4.9%, rose to an average 6.4%, peaked at 7.7% and ended at
6.1%; ~1.3% higher from where it began. This
current period started at 5.0%, has averaged 8.1%, peaked at 10.0% and is
presumably ending around 6.3%, 1.3% higher than where it started. So the ‘08/10 total recessive period started and
ended at a normal level, but averaged 1.7% higher than typical in its interim. Its peak was 2.3% higher than average peaks,
but was beaten by the ‘81/82 recession’s peak of 10.8% (but which was one-third
as long in total duration as ‘08/10).
It should be noted that there has
been an unprecedented drop in the labor
participation rate* in the past five years – about 3% or more. In a very brief time, it has fallen back to a level not seen since the back half of the 1970s. Much of that drop is from unemployed people becoming discouraged who just stopped looking for work.
* Basically those willing and able to work (older than 15, younger than 65, not infirmed or institutionalized) employed or unemployed and looking for work, as a percent of their cohort (population of same age range). So the rate drops as people become discouraged and drop out of looking for work.
This suggests that the "real" unemployment rate is much higher than it's current 6.3% headline number. This
is reflected in the so-called “underemployment
rate” (the BLS’s U-6 measure; v. the headline rate, which is U-3). We only have about two decades of reported
data for U-6. U-6 suggests that real unemployment is still double-digits. In this latest recession,
that measure peaked around 17% and is presently 12.3%. That might compare to an un/underemployment
rate of ~25/40% of the Great Depression (according to me fiddling with numbers). This all might be really disheartening, but I focus mostly on jobs being created (non-farm payrolls) as it's a current forward-moving action, rather than number of people without jobs, which is mostly a residual result of the past.
In the typical recession the
average duration of unemployment
when it began was about 11 weeks, averaged around 14 weeks, peaked about 17
weeks and ended at about 16 weeks. This
current period started high already at 17.5 weeks, has averaged an unprecedented
32.2 weeks, peaked at 40.7 weeks and is presumably ending at around 35.1
weeks. The average duration in this
latest recessive period then is over double that of the average recession’s, 2
½ times the average peak, and is “ending” over double what is the typical
duration of a recession’s end. The next
worse recession was ‘81/82, with a 21.2 week peak.
Let’s just pause here… In a
typical recession, people are out of work on average 3 ¼ months. In this latest recession, people were and remain out of work about
~8-10 months – the better part of an entire year. (And in normal non-recessive periods, the unemployed are without
a job roughly 2 ½ months.) This is a
good morsel for why I believe we have and are suffering, an albeit
comparatively mild, depression.
But all this is, as of May, now the
stuff of yesterday. We are now embarking
on our next time of normalcy (putting aside the "new normal" and "new neutral" gobbledygook). So what did past normal periods look like in terms of job growth? Here is some explanation of previous periods of so-called “normalcy”
(periods excluding protracted job losses, as well the growth periods
where those job losses were recouped)…
There have been nine “normal” periods in the post-WW II era. The latest one was Feb 2005 through Jan 2008. It was also the weakest. Generally speaking, the 1960s followed by the
1990s and 1980s were the most robust.
They tend to last ~3.5-4.2 years (remember, this is the stretch of
time after all jobs are recovered, so the total run from the end of job loss
would typically be about a year longer).
But they range widely. One lasted
just a year, Apr 1959 through Apr 1960 (and I exclude a technical six month
period between the 1980 and 1981/82 “double-dip” recessions). Two lasted as
long as roughly eight years. Basically
the 1960s, Feb 1961 through Mar 1970; and the 1990s, Feb 1993 through Feb
2001. The next longest was the 1980s,
Nov 1983 through Jun 1990.
The greatest total gain in jobs in normal times was the 1960s, with
26.4% cumulative growth over 8.3 years.
There are two close runners-up.
The 1980s with 17.9% over 6.6 years, and the 1990s with 17.5% over 8.0
years.
The average annualized rate of growth in jobs in normal times is about
2.7%. The greatest
annualized growth rate is pretty much tied between a three-year period in the
early 1950s (July 1950 through Jul 1953) with 3.4%, and believe it or not the
back half of the 1970s (Feb 1976 through Mar 1980) with 3.3%. The 1990s grew at 2.0% on average, the second
worst, again, believe it or not. The
worst was the mid-2000s (Feb 2005 through Jan 2008), which only grew at 1.3%.
During normal times, the unemployment rate tends to hover around
5%. It begins its normalcy around 6% and
ends it around 4.5-5%. The best
improvement in the rate (but and, as well, from the highest start) were the
1980s. It started its normal period at
8.5% in Nov 1983 and ended almost seven years later at 5.2%. That period also spent about half its time
below the unemployment rate level immediately prior to its previous recession,
whereas normal periods on average don’t do so until near their very ends, if
ever.
During normal times, the average duration of unemployment
averages about ~12.5-13 weeks. They
start on average at about ~16 weeks and decline to ~11 weeks. Again I underscore, we are starting this current
“normal” time at a nasty 35.1 weeks (hence the “new normal/neutral” blah, blah, blah). The
best improvement again was the 1980s normal period. It started at almost 20 weeks and ended at
11.6 weeks. As time goes by, the average
duration has been rising. The last
normal period (mid 2000s) for example began at 19.7 weeks and ended at 17.5
weeks.
And for what it's worth, I noticed some trends that might be predictive of detecting the next recession. ~60-80% of the time* the following three conditions existed which preceded the next recession: 1) Year-over-year job growth, after decelerating from peak growth,
dropped below 2%, starting to approximate population growth. 2) The
unemployment rate was about 0.6% higher than the low achieved in the respective normal period. 3) The
duration of unemployment was about 0.7 weeks above the low achieved during the respective normal period. Any of that actually predicts the next one, and you all owe me a consultation fee on $trillions. (I'll invoice you.)
* A good way to think about the "strength" of statistically derived probability, just think of it this way... "60-80% of the time when you pull the trigger of that gun you're pointing at your head, it won't fire." How comfortable do you really feel about "60-80% of the time" now? Right? Therefore, I don't really pay much attention to any correlations that are under ~85%.
So what of now? If the May jobs report generates at least 113
thousand more jobs (excluding revisions; to be reported the first Friday in
June), we will have recovered every job lost in the six-plus-year long, worst
recession of the post-WW II era. I am of
the opinion that these kinds of moments are the psychological inflection points
for economic growth acceleration. Which
is one reason why I believe 2014 is a year of accelerating growth and job
improvement going forward.
For the US. But I also believe that the US still very
much so drives the rest of the world.
Therefore, I don’t per se care what’s happening in China or Europe or the BRICs
or MINTs. The US is by far the largest
economy in the world. It runs persistent
trade and current account deficits, meaning its economics and finances flow out
to and influence the rest of the world and less the other way around. (And before you all start yammering about how I will rue the day when China collapses and then can't buy our treasuries any more, I refer you to Japan, circa 1989-forward. Who, coincidentally with its stronger currency and massive internal savings rate, will be sitting right there to takeover China's role and once again be our lender of last resort. That is, if they'd like security assurances from us regarding China's increasingly aggressive expansion policy in their region. And the same with almost the rest of the entire world worth talking about. Just saying.)
The US is by far the most socio-politically, financially
and economically integrated nation in the world. Its currency is the denomination of
most global transactions and store of value.
Not the renmimbi or yen or euro or pound or franc. Certainly not the ruble or rupee or real.
None of those would-be pretenders are even close. Therefore the US’s economic and financial
activity influences others, whereas others do not so much influence us. China is a banking and real estate house of
cards? Europe flirts with deflation and
recession? So what. If the US starts accelerating as it now seems
to be, it will pull everyone else out of their respective problems. As it has for the past seven decades, and
will continue for decades to come.
So as I write, we are entering
the tenth “normal” period of the post-WW II era. It's a really soft start for sure, with a "truer" unemployment rate closer to 8%, underemployment around 12%, long term unemployment at record levels, duration of unemployment multiples higher than what is typically regarded bad. But just keep banging out 200-250 thousand more jobs a month, and we will escape the gravitational pull of this latest depression.
And head right into our next kettle of fish - inflation. Which we don’t have. Yet. I
hope. But with an unprecedented amount
of stimulus in the system presently, I fear any small uptick in real growth
will create a demonstrably greater than typical uptick in inflation. Which will be the subject of a future post of
mine.
