Saturday, August 22, 2009

There is No Such Thing as a Jobless Recovery

There is so much talk of an "jobless economic recovery" these days let's dispel this myth immediately.

There is no such thing as a "jobless recovery." In other words, until the U.S. economy begins producing new and high paying jobs there cannot be an economic recovery.

Most economists live in a fantasy land of delusion and silliness. Assumptions on this or that rule their domain. They do not live in the real world where people actually have to have jobs in order to buy things. Most (like Fed chief Ben Bernanke) have never run a real business, met a payroll, or even created a job. Economics is a theoretical realm, not a practical one. I should know. I am an economist, reformed that is.

Economists measure GDP growth when determining when a recession begins or ends.

So what?

GDP growth doesn't matter to an unemployed construction worker in Las Vegas or a single mother in Miami who is about to lose her condo in foreclosure.

As the article reprinted below makes very clear, the term "jobless recovery" is an Orwellian creation of politicians who want to boast how great the financial world is while their constituents are selling their family heirlooms on eBay to buy food.

Economies that do not produce NEW and HIGH PAYING jobs are doomed economies, sick and spindly failures. While GDP numbers are certainly important in some circumstances, they do not mean anything to the real estate markets where people actually need jobs to pay rent, buy homes, lease offices, or start new businesses.

It's nice that GDP is positive again but so what? The Federal government cooks its numbers in ways that put Wall Street to shame.

How about this as a definition of an "economic recovery"? When the economy actually has just as many jobs as when the recession began? In other words, when the economy in 2010 is back to where it started in 2007? Common sense, eh? But you guessed it. Washington would never agree to such a definition. It's far too logical. But ask yourself this. Isn't a patient in a hospital "recovered" when they are in the same health again as before they got sick?

There will not be a prolonged and substantial recovery in the U.S. real estate market until the U.S. economy starts producing NEW and HIGH PAYING jobs, those capable of supporting apartment leases and home mortgages.

Until then, we tread water while politicians in Washington throw champagne parties celebrating each other with speeches, awards, and trophies about how they pulled us out of the New Great Depression with $2 trillion in deficit spending and hardly a bead of sweat on their brow.

Robert J. Abalos, Esq.

If jobs don't return, is it really a recovery?

Sunday, August 16, 2009

Is the term "jobless recovery" an oxymoron?

That was the question some readers had in response to my Aug. 6 column on the subject.

"I have to say that anyone who uses the term 'jobless recovery' needs to be sent to a re-education camp," Storey Chapman of San Francisco writes. "It is a rude, heartless oxymoron. When there are more than 20 million people either unemployed or underemployed, millions more trying to survive on niggardly unemployment compensation, there is no 'recovery,' no matter what the artificial, irrelevant economic statistics claim."

Whether jobless recovery is a contradiction in terms depends on who's talking.

When economists talk about business cycles, they focus mainly on gross domestic product.

Before the 1990s, employment typically recovered soon after GDP. But after the recessions ending in 1991 and 2001, the unemployment rate continued rising for 15 and 19 months, respectively, after GDP turned up - giving rise to the term jobless recovery.

My previous column discussed possible reasons for this phenomenon - including the decline of labor unions, global competition, offshoring and a surge in productivity.

Now it looks like GDP is jumping the gun on employment again.

On Friday, the Philadelphia Federal Reserve released a quarterly survey showing that forecasters now expect GDP to grow 2.4 percent this quarter, up from their previous estimate of 0.4 percent. (GDP shrank just 1 percent in the second quarter after plunging 6 percent on average the two previous quarters.)

But they also raised their forecast for unemployment. They now expect the unemployment rate will average 9.2 percent this year - up from their previous projection of 9.1 percent - and 9.6 percent next year.

The question for today is, should economists and the media say the recession is over when so many are still jobless?

I put this question to members of the National Bureau of Economic Research Business Cycle Dating Committee. This small team of economists is the semiofficial arbiter of recessions and expansions. Only one, Harvard's Jeffrey Frankel, called me back, but others have been quoted on the subject.

The committee defines a recession as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income and other indicators." It calls GDP "the single best measure of aggregate economic activity," but it also considers other indicators, notably employment.

No one can accuse the NBER of acting hastily when it declared - in July 2003 - that the previous recession ended in November 2001. The committee typically declares turning points long after the fact, but it waited even longer last time because unemployment just kept going up.

"When we declared the end of the recession, it was clear that employment was not recovering," says Frankel.

Nevertheless, the committee declared an end to the recession because it didn't want to break with tradition. In its statement, the committee said it "has consistently placed more emphasis on output than on employment."

Frankel says that he personally was willing to call November 2001 the end of the recession because around that time, even though jobs were still being lost, they were disappearing at a slower rate.

He sees the same thing happening now. The average monthly job loss was 331,000 in May through July compared with 645,000 in November through April. One sign the tide could be turning: In July, hours worked did not decline for the first month in almost a year.

Although he does not see strong employment gains for several years, Frankel says that if he were "forced to guess," he thinks the committee could declare that the recession ended in the second half of 2009, perhaps as early as July.

Stanford economist Robert Hall, the committee's head, is in no hurry to make such a call. "The committee will have to reconcile positive GDP growth with shrinking employment," Hall told Bloomberg. "I personally put substantial weight on employment, so I may be leaning toward a later date."

Frankel points out that the committee is not a slave to GDP. Last December, it declared that the recession we're in now started in December 2007 - the month employment peaked. Yet GDP continued growing in the first and second quarters of 2008.

"Employment started declining before GDP. That's pretty rare," he says. "We took a bit of a gamble. We thought the GDP statistics would be revised." And they ultimately were. Two weeks ago, the government changed its GDP number for the first quarter of 2008 from positive to slightly negative.

Frankel says terms like jobless recoveries are inevitable because indicators don't move in lockstep. "It would be convenient if they did. Awkwardly, they don't."

Lawrence Mishel, president of the Economic Policy Institute, a liberal think tank, says it's wrong to focus on GDP.

"Wall Street economists focus on GDP because their interest is the stock market and corporate profits," he says. "To me you haven't really recovered until you have at least as many jobs as you had before the recession started."

Since the recession started, the U.S. economy has shed about 6.7 million payroll jobs, Mishel says. Getting them back "is going to take several years."

Maybe it's time to come up with a new term for a recovery that's missing jobs.