THE STASH DECEMBER 15, 2009
The good folks at Grant's Interest Rate Observer must have felt pretty lonely six weeks ago when they suggested the recovery might be "jobful" rather than jobless, as almost everyone was insisting at the time. Now, with one not-terrible employment report behind us, the jobful view is gaining a little momentum. Newsweek's Dan Gross just wrote a compelling column arguing that the economic pundits are almost always late to the party--they always weigh the near-past and present too heavily, which causes them to miss signs of a looming turnaround (both in good times and in bad). And Time financial columnist Justin Fox, despite having just written a column bemoaning the depth of the labor-market recession, thinks the job situation may be on the upswing, too.
For what it's worth, the most persuasive bullish case I've seen since the Grant piece is this Deutsche Bank analysis that Zubin linked to last week (via Wisconsin economics professor Menzie Chinn). The Deutsche Bank team argues that employers laid off way more people during the recession than was justified by the decline in output; now that the economy is growing again, companies will have to hire way more than is justified by the increase in output to make up for the overshooting on the downside. Or as they put it:
Okun's Law is an empirical regularity that holds that for every one percent decline in GDP growth relative to potential, the unemployment rate will increase by about 1/2 percentage point....To consider the extent to which there may have been some excessive layoffs during the downturn, Charts A1 and A2 show the relationship between changes in employment and changes in real GDP, with GDP lagged one quarter. Both charts show that the change in employment during this recession was noticeably more negative than the standard Okun's Law regression would predict. On the assumption that historical relationships reassert themselves, we surmise that employment could bounce back more strongly during this recovery [emphasis added]...
Here's hoping, in any case.
Update: I just read the latest issue of Grant's--out last Friday--and it's fair to say the venerable interest rate observer is losing his nerve a bit. The cover piece revisits his case for bullishness and finds it a bit more ambiguous than previously thought. One cause of his hand-wringing is the fact that long-term unemployment hasn't yet picked, something that caught my eye too in the last (otherwise semi-favorable) employment report. Still, Grant says he's "not quite ready to throw in the towel on employment." Me either--far from it.
Update: Looks like Dan Gross has been bullish on the job market for over a month now. Check out his Slate piece on the subject from mid-November, in which he focuses in particular on productivity growth as a leading indicator.