Released today, the US employment report for July shows the 33rd consecutive month of positive job gains, by my count. Earlier in the week, the US Department of Commerce reported showed that the 2nd quarter was the 16th consecutive quarter of positive GDP growth. Of course, the growth in employment and income has not been anywhere near as strong as one would like, nor is it as strong as it could with a more intelligent fiscal policy in Washington. But it is much better than what most other industrialized countries have been experiencing. Many European countries haven’t even recovered from the Great Recession, with incomes currently still below their peaks of six years ago.
US job growth has averaged 186,000 per month over the last two years, and 167,000 per month over the last three. Most people are aware of the improvement relative to the horrendous job losses during the 2008-09 recession, but they are probably not aware of how the recent recovery looks compared to the previous business cycle. During the six years of recovery between the end of the 2001 recession and the economic peak at the end of 2007, job growth averaged 100,0000 per month, substantially lower than the current job count. The difference is even greater if one looks at private sector jobs numbers, because government employment expanded substantially under the Bush Administration whereas it has been contracting in recent years.
GDP growth has fallen well below 2% in the last three quarters. But, that can also be blamed on the US's dysfunctional fiscal policy. Washington politics have been the obstacle to a normal robust recovery, through a combination of factors, including spending cuts in 2011 and 2012, the expiration of the payroll tax holiday in January 2013, the sequester in March, and now needless business uncertainty arising from battles over the country's debt ceiling and the federal budget. Given all that, it is surprising that private consumption and investment have held up as well as they have.
The right policy response, of course, is fiscal stimulus in the short term, not fiscal contraction, combined with steps to address the problems with funding entitlement programs in the long term. Our current pattern of pro-cyclical fiscal policy is exactly backwards.
[For more, watch my appearances on Fox Business, where Stuart Varney asks me why we aren’t achieving rapid growth.]
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Comment Commented Craig Hardt
I'm wondering if it's not comparing apples to oranges looking at job growth numbers in the years following the great recession relative to those numbers for the years following the 2001 recession.
It's fairly well established that the more recent recession was far worse than the one in 2001, meaning the economy had far more room to grow after hitting bottom than it did from 2002-2007. I'm sure readers would appreciate it if you discussed these differences when comparing the relative robustness of the two recoveries.
Thanks for an informative article! Read more
Comment Commented Jeffrey Frankel
To Craig Hardt,
Thank you for your question; it is a good one. There are two rules of thumb relevant in thinking about how to compare expected recovery speed from the 2008-09 recession to prior recessions. Unfortunately they point in opposite directions. The first rule of thumb is the one you are thinking of: the deeper the recession, the faster the recovery. (But note that even before the most recent cycle, the longest recovery in US history, 1992-2000, with a big increase in employment, followed a recession -- 1990-91 -- that was much shallower than the 1974 and 1981-82 recessions.) The second rule of thumb is the one that we owe to the Reinhart-Rogoff book, This Time is Different: recoveries tend to be slow and weak when they follow a recession that originated in a financial crash. Given that these two rules point in opposite directions, one could be agnostic.
I personally expected a slow weak recovery, not for Reinhart-Rogoff reasons, but for another reason: we ran up the fiscal deficit and debt so much during the 2002-07 expansion, so that there was less room (especially perceived room) to respond to the recession with fiscal stimulus, especially compared to 2001. (In op-eds in 2003-04, I predicted that the next recession, whenever it came, would be more severe for this reason.)
JF Read more
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