This kind of chart has always bothered me:
It is not the content or format that worries me. And, to be sure, the magnitude of the labor market damage wrought by the recession weighs heavily on my mind. Moreover, the length of time to recovery seems immense. And, on top of both of these, we effectively reduce our expectations of “recovery” with this chart – recovery should be about capturing the previous trend, not the previous peak.
Despite all this, it has always seemed to me that I was missing some even darker point. I think I finally identified that issue. Consider that the US economy remains about 7 million jobs shy of the previous peak of nonfarm payrolls. At 200k jobs a month – a seemingly optimistic forecast at this point – we regain the peak in about 35 months. We are already (believe it or not) 23 months into the expansion, which means that we recover the jobs lost in this cycle after a 57 month expansion.
Now consider this: The average post-WWII expansion is only 59 months.
If this expansion is typical, then we can expect just 2 months of job growth beyond the previous peak before the next recession hits.
Now suppose that job growth limps along at a monthly average of 150k a month. Then we are 46 months away from the payroll peak, or an expansion time of 69 months. Ten months shorter than the post-WWII average. In other words, even without resorting to an immediate double-dip scenario, we could very well be in recession prior to regaining the jobs peak.
Perhaps we should take some comfort in the fact that the average of the past three expansions is 95 months – which provides some room to grow jobs beyond the peak, but not much in historical perspective. Moreover, given the likelihood that the Fed begins a tightening cycle well before the payroll peak is in sight, and that fiscal policy looks poised to turn contractionary very soon, I have trouble thinking this recovery will be more like the past three (one of which included massive technological change) than the entire post-WWII average. That said, hope springs eternal.
The very real possibility that we will slip into recession prior to regaining the previous jobs peak casts the current situation in an even darker light than that of Federal Reserve Governor Sarah Raskin. Not only is the depth and duration of the unemployment crisis immense, but so too are the long-term consequences. The failure to design a coordinated package of monetary and fiscal policy to engineer a V-shaped employment recovery looks increasingly like a massive lost opportunity. And with that opportunity now lost, a return to even something sort of like the pre-recession jobs trend seems essentially impossible.
This post originally appeared at Tim Duy’s Fed Watch and is reproduced here with permission.