Three Years After the Great Recession’s Start

I thought it useful to take a look at a few retrospective macro indicators pertaining to December 2010, three years after the beginning of what some term “the Great Recession”. In particular, recall that some observers were, even ten months into the recession, and a month after Lehman’s collapse, denying the possibility of a truly deep loss in employment, and the idea of a lack of credit availability.

Figure 1 depicts the level of nonfarm payroll employment (blue line), and civilian employment series, adjusted to a nonfarm payroll employment concept (research series, not official).

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Figure 1: Nonfarm payroll employment(blue line), and civilian employment series adjusted to NFP concept (purple line), both in ‘000s, seasonally adjusted. Casey Mulligan’s 10/26/2008 predicted floor at 134 million (solid black horizontal line). NBER defined recession dates shaded gray. Source: BEA, December employment situation release).

It’s clear we have only started to dig ourselves out of a very deep employment hole. This characterization applies even if one appeals to the civilian employment series adjusted to conform to the NFP concept that many conservatives thought was a better indicator of the labor market than that provided by the standard establishment survey. That series is higher by 2 million, and rising much more rapidly than the establishment series; however, due to the higher volatility of this research series, one would not want to make too much of this divergence in growth rate. In both cases, employment fell far below Professor Casey Mulligan’s 10/26/2008 declared floor on employment of 134 million.

While nonfarm payroll employment growth is lackluster, it is notable that private sector employment is growing faster, and private sector aggregate hours even faster, albeit (both) from lower bases.

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Figure 2: Log nonfarm payroll employment(blue line), private employment (red line), and aggregate weekly hours (green), seasonally adjusted, rebased to 0 at 2007M12. NBER defined recession dates shaded gray. Source: BEA, December employment situation release), NBER, and author’s calculations.

Finally, we shall get a snapshot of the overall economy on Friday, when the advance release for 4th quarter GDP is reported. High frequency indicators diverge.

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Figure 3: Official quarterly GDP (blue bars), monthly GDP from e-forecasting (1/19 estimate, red line), and monthly GDP from Macroeconomic Advisers (1/18 estimate, green line), all in billions of Ch.2005$, SAAR. NBER defined recession dates shaded gray. Source: BEA, 2010Q3 3rd release, e-forecasting, Macroeconomic Advisers, and NBER.

GDP seem to continue growing, although at a slower rate than one might expect from such a deep recession (but probably in line with a recession coincident with a financial crisis). Of course, it would have been much worse without the stimulus package passed in February 2009. [0], according to the CBO. One mystery, alluded to in Leonhardt’s recent NYT article, is why GDP has grown at a pace so much faster than employment.

Those who cite this as a puzzle of the recent recovery are somewhat off the mark. A substantial divergence between employment and output growth has been the hallmark of the last three recoveries (1990’s, 2000’s, and the current episode).

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Figure 4: 4 quarter growth rate of nonfarm payroll employment (blue), and 4 quarter growth rate of GDP (red), both calculated as log differences. NBER defined recession dates shaded gray. Source: BLS, BEA, and author’s calculations.

A more detailed look at this employment/gdp issue was provided by Jim a few weeks ago. The fact that this pattern shows up in previous US recoveries suggests that the phenomenon is not specific to policies adopted by the Obama Administration. The fact that the GDP-employment growth is not as pronounced in other countries with, arguably, greater unionization or labor power, further suggests that the ability of labor to wrest high wages is not the source of the divergence. So the puzzle remains; for some informed speculation, see [1] [2].


Originally published at Econbrowser and reproduced here with permission.