- The Washington Times - Saturday, March 5, 2005

Nonfarm payroll employment registered a solid gain of 262,000 jobs in February, the Labor Department reported Friday. That’s the kind of monthly jobs growth that has characterized strong expansions of the past. And it is a welcome acceleration of jobs expansion even compared to last year, when 2.2 million nonfarm jobs were created, reflecting a monthly average of 183,000.

Indeed, despite achieving rapid rates of economic growth during each of the previous two years (4.4 percent during 2003 and 3.9 during 2004, the U.S. economy has generated relatively fewer jobs than during previous expansions at comparable stages.

A review of labor-market trends during and after the six recessions since 1960 (excluding the six-month downturn in 1980) reveals that the last two recessions have been characterized by significantly slower job growth than previously experienced.

Prior to the July 1990-March 1991 recession, nonfarm employment tracked closely with pivotal changes in the business cycle. The correlation was so close, in fact, that nonfarm employment is officially classified as a coincident economic indicator. Essentially, coincident indicators measure how well the economy is doing at any moment in time, and they change direction roughly within two or three months of a business cycle’s turning points, such as the peak (the top of the expansion) and the trough (the bottom of the recession). For this reason, the National Bureau of Economic Research (the official arbiter of peaks and troughs in the U.S. business cycle) has used nonfarm employment as one of its four key indicators.

During the recoveries following the four recessions that preceded the 1990-1991 downturn, the employment experience was almost universally the same. Nonfarm employment began increasing in March 1961 (one month after the recession ended) and exceeded the previous cyclical employment peak within 10 months. The exact same pattern prevailed when the next recession ended in November 1970. Employment began rising two months after the deep 1973-1975 recession ended in March 1975; 10 months later, employment was higher than the previous cyclical peak. That pattern was repeated following the even deeper recession that ended in November 1982. Employment began rising in January, and by November 1983 nonfarm employment was higher than the last cyclical peak. Nonfarm payrolls, it’s worth noting, plunged by 2.8 percent during the 1973-1975 recession and by 3.1 percent during the 1981-1982 downturn (when the unemployment rate peaked at 10.8 percent at the end of the recession).

By contrast, 13 months after the 1990-1991 recession ended in March 1991, nonfarm employment was still below its level at the trough of the downturn. Moreover, while the unemployment rate peaked at 6.8 percent during the recession, it continued to rise over the first 15 months of the recovery, reaching 7.8 percent in July 1992. Even though employment fell by less than 1.5 percent from the jobs peak to the jobs trough, it took 21 months from the moment job growth began before employment exceeded its previous peak.

Employment growth in the aftermath of the March 2001-November 2001 recession was even worse. While 1.6 million jobs (1.2 percent) were lost during the relatively mild eight-month recession, more than another million jobs (0.8 percent) were lost during the first year and a half of the economic recovery. Even though the recession only lasted eight months, the pre-recession employment peak (February 2001) was not reached again until January 2005, 47 months later. By way of comparison, the employment peak related to the much deeper and longer 1973-75 recession (July 1974) was reached again only 19 months later, after the loss of 2.8 percent of employment.

Clearly, the once-direct link between the business-cycle trough and imminent increases in nonfarm employment has been broken. The last two relatively mild recessions have been followed by terrible rates of job growth. A future editorial will examine why this link has been cut.


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