Saturday, September 06, 2003

22 months of job losses - a structural change?

Defying Forecast, Job Losses Mount for a 22nd Month
The economic recovery in the United States is now in its 22nd month, without reversing constant job losses. The unemployment rate declined to 6.1 percent from 6.2 percent in July, but economists said that was apparently because of a surge in the number of people who, having lost jobs, listed themselves as self-employed rather than unemployed....

"If we don't see some job growth by Thanksgiving, then the spurt in economic activity that we are currently experiencing will fade," said Mark M. Zandi, chief economist at, "and we will be right back to where we were early this year, in the economic soup."

The meager recovery, which began in November 2001, has now achieved historical significance. Not since World War II has employment failed to grow for so long after the gross domestic product, which measures the total output of goods and services, began rising again. Just more than a million jobs have disappeared over the last 22 months, on top of the 1.78 million lost in the preceding eight-month recession. All told, the national payroll has shrunk by almost three million jobs since March 2001.

..."We have been sitting on the bench waiting and waiting and waiting for some jobs to appear, and they still are nowhere in sight," Joel L. Naroff, a normally optimistic forecaster, advised subscribers to his newsletter...

What surprises many economists is that the job-shedding has continued despite what they describe as an extraordinary level of economic stimulus. Low interest rates, tax cuts and rebates, a rise in military spending, mortgage refinancings, growing corporate profits, even a long-awaited improvement in business spending on new equipment and software have all contributed to the rise in the economic growth rate.

But jobs are disappearing, and employers continue to resist adding hours for their existing workers. Economists warn that without payroll expansion and rising income from wages, sustaining the economic growth will be difficult once the stimulus weakens....

"If we go into next year without job growth, then the consumer's willingness to keep spending comes into question, and recovery is in danger of unwinding," said James W. Paulsen, chief investment strategist for Wells Capital Management.

..."Whenever you see a spike in self-employment in this kind of economy, you know that is involuntary entrepreneurship," said Jared Bernstein, a senior labor economist at the Economic Policy Institute.

Bradford DeLong had an extensive discussion on this. Productivity growth is sufficent to fuel our current economy, meaning no rise in employment. Whether it's the technocentric transformation of the "third world" (India, China -- a large fraction of humanity!) or the impact of automation, or both, the effect is the same. I doubt any Bush policy will make much difference.

We have only 1-2 months to turn this around, 3 at the outside. Beyond that we start to have to look at the kind of measures familiar to FDR.

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