Employment Report Indicates Recovery Plus Jobs

CHEM ECONOMICS

The March employment report was the economic event of the month: After a loss of 8.4 million jobs since the start of the recession, followed by nearly a year of a jobless recovery (CEP, Oct. 2009, p. 12), payrolls finally began to increase. The report featured private sector job creation (even in high-paying sectors), upward revisions to January and February statistics, and even an increase in the participation rate as formerly discouraged workers, seeing an improvement, re-entered the labor market. The report was indicative of an improving economy, and potentially an earlier emergence from the jobless recovery than had been expected.

Despite the positive nature of this report, the unemployment rate will likely remain above 9.0% through the rest of the year, as expectations for a jobless recovery and high unemployment levels persist.

How does this recovery stack up against history? The American Chemistry Council examined how long it took for non farm payrolls to starting increasing after the business cycle trough (or end of recession), as well as how long it took for an improvement in the unemployment rate to occur after the trough. The data appear in the table at the right, which shows the record for the current recovery, the jobless recoveries of 2001 and 1991, and the quickest and slowest improvements for recoveries from 1949-1982.

The results are encouraging. Most business economists peg the recent recession's end in June 2009, and it then took seven months for a slight gain in nonfarm payrolls to emerge in January. This is faster than the comparable 12 months of the 2001 recovery, but is somewhat slower than the 1991 recovery and the record slowest recovery during 1949-1982. Looking at improvements in the unemployment rate, however, it took only five months for an improvement to occur in this recovery. This is much less than the 34 months it took after 2001 and in the middle of the band for 1949-1982.

There is reason to believe that job market improvements may occur at a quicker pace than currently anticipated. Productivity gains have been very strong during the recession and recovery, although significant improvement in capital spending will be needed to generate further gains in hiring. Similarly, temporary hiring has been soaring, and although this is not sustainable, steady increases in temp hiring signals significant increases in labor demand. This bodes well for stronger payrolls in the near term, and as businesses become more confident in the recovery, temp-to-permanent hiring will commence. Also, a sharp decline in the reported average duration of unemployment suggests that the unemployment rate is moving lower.

The current recovery provides potential for job creation, but the job market is a long way from a full recovery. It will take time to reabsorb the jobs lost during the recession and also to provide opportunities for newly graduated engineers and other entrants to the labor force. In addition, long-term unemployment (over six months) has doubled in the past year and presents many challenges.

[Author Affiliation]

-T. Kevin Swift

American Chemistry Council

kevin_swift@americanchemistry.com