THE STASH NOVEMBER 3, 2009
In the latest issue of Grant's Interest Rate Observer (not online), the venerable James Grant, with a big assist from his colleague Dan Gertner, makes the case that expectations of a jobless recovery are seriously misplaced, and that the current recovery will end up looking a lot more like the "jobful" recoveries that preceded the 1991 and 2001 recessions/recoveries. (In the latter two cases, it took three-and-a-half to four years for employment to return to its pre-recession levels; most economists predict it will take about that long this time.)
The Grant/Gertner case is based on tracking the peak for different durations of joblessness. So, for example, in the 1981-2 recession--which saw a rapid return to job growth--the number of people out of work less than 5 weeks peaked two months before the bottom of the business cycle (i.e., the end of the recession); the number of people out of work 5-14 weeks peaked exactly at the bottom, as did the number of people out of work 15-26 weeks; and the number of people out of work 27 weeks and over peaked 7 months after the bottom. It turns out that most postwar recessions/recoveries prior to 1990 followed this pattern: the various durations of unemployment tend to peak not too long after the bottom of the recession itself, and there's a fairly quick overall return to job growth.
On the other hand, the 1990-1 and 2001 recessions/recoveries looked very different. In the first case, the number of people out of work 5-14 weeks peaked 11 months after the end of the recession; the number of people out of work 15-26 weeks peaked 15 months after the end of the recession; and the number of people out of work 27 weeks and over peaked 19 months after the recession. (The corresponding peaks for 2001 came 5, 20, and 22 months after the end of the recession.) And, of course, these recessions corresponded with an agonizingly slow labor-market recovery.
So what do the numbers for the current recession look like? Grant and Gertner assume (following Bloomberg) that the recession ended in May. In that case, the peak for the number of people out of work 5-14 weeks came the same month as the end of the recession; the number of people out of work 15-26 weeks peaked one month after the recession; and we may be about to see the peak for the number of people out of work 27 weeks or more, which would put it in the 6-7-8 month range. Which is to say, barring some sort of double-dip (and pending that final peak), the dynamics of unemployment during this recovery look a lot more like the traditional post-war recovery than the brutal jobless recoveries of the last two recessions. Here's hoping, in any case.
P.S. Of course, if the recession ended later than May, as some think, that would only strengthen the Grant/Gertner case, as the unemployment peaks would come even earlier relative to the bottom of the business cycle.