The jobless recovery

The US jobs data for May marked one milestone: employment in the US finally returned to the same level it had reached in January 2008.  Jobs totalled 138,365,000 then.  In the next two years, the labour market lost almost 10 million workers. In adding 217,000 jobs in May 2014—with the unemployment rate unchanged at 6.3%, employment has returned to that peak, 2,312 days later.

Each recovery from a slump or recession since 1945 has taken longer to restore employment to previous levels. From the mild 2001 recession, it took 4 years, from the deep 1980 recession, it took only two years. From the Great Recession of 2008, it has taken six and a half years!

Moreover, in those years, the working age population has also risen. As a result, employment is still way behind the trend that should have been maintained if the Great Recession had not happened. That means that over the last six or more years there are jobs that should have been created which have been lost forever, causing misery and poverty for those that might have had them. In that sense, this has been a jobless recovery.

And the share of people of working age who do have jobs continues to be at lows not seen since the 1970s, when the participation of women in the workforce was relatively low. The labor force participation rate was unchanged in May at 62.8%. And the employment-population ratio was also unchanged in May at 58.9% (black line).

Now part of that decline has been due to the ‘baby boomer’ generation born from 1946-64 starting to retire and some retiring early. But the bulk of the decline is still the product of the Great Recession. People have given up looking for a job, gone back to school, or sit at home with their parents, or do small jobs for ‘cash’ outside the radar of the taxman.  Moreover, those who lost their jobs between 2008 and 2010 have stayed out of work much longer than in previous recession. The average weeks of unemployment remain stubbornly high. Americans who have lost their jobs are finding it much more difficult to get another.

If people do get work, it is mostly in sectors that pay less than their previous job: like retail or the health sector. Or they are working on ‘zero-hours’ contracts i..e paid only for each our worked and on call in the style of casual labour of the 19th century.  Wage growth is rising at only 2% a year, hardly above inflation and tax. So disposable incomes are more or less stagnant for the majority. And if you do not have a college degree or professional qualification, it is increasingly hard to get a decent job. Employment for people with a bachelor’s degree or more has actually been growing since the crisis in 2008. It never stopped growing. But work for those with a high school degree or less has been shrinking and has only just begun to rebound. It has been a jobless recovery for the majority.

Still, the employment situation in the US is gradually improving as the unemployed are rehired at lower rates of pay or those new to the jobs market get ‘starter’ pay or ‘no-pay intern’ jobs. People are being ‘priced’ into jobs.

The monthly measures of business activity in May for all the major economies also came out last week. These are called the Purchasing Managers Indexes (PMIs). They are surveys of views by executives in companies on whether they have purchased more or less goods and services in the month. A balance of over 50 suggests expansion and below 50 suggests contraction. So it’s only a survey, but does offer a guide to activity. If the PMI is well above 50 and rising, that suggests an acceleration in growth.

I have compiled the various country PMIs into a world measure. In May, on the PMI measure, the world economy expanded as it has done since October 2012 and May’s figure suggests an acceleration after a partial slowdown over the last six months. That slowdown had been caused by weaker growth in the emerging economies (EE) of Brazil, India, China etc. But there was an uptick there in May as well as in the developed economies (DE).

So the recovery continues and there is no sign of a new slump. The real indicators for that are profits and investment – which I have discussed before in previous posts.  In the US, profits fell in the first quarter of this year.  If this decline becomes a trend, then history shows that investment will start to fall about one year or so later.  And once investment starts to contract, a recession will follow.  But it is too early to reach that conclusion.