As they celebrate Labor Day, many Americans are growing impatient for signs of a job-market recovery. While many are frustrated with the pace of job creation, a new analysis reveals that the job market is well on the road to recovery and that it is rebounding sooner and faster compared to the previous two recessions.
In our annual Labor Day review, my company sees positive trends in a number of employment indicators, including the pace of layoffs, job creation and the unemployment rate. However, they are shrouded by the fact that the economy began its recovery in a much deeper hole than usual; the deepest since the Great Depression.
By most accounts, we are barely a year into the recovery. At this point in the previous two recoveries – following the 1991 and 2001 recessions – the job market was actually getting worse. Today, though, many people are so caught up looking at the weekly and monthly numbers that they fail to look at the bigger trends, which are all positive.
There is no doubt that the job market has a long way to go before it fully recovers. After all, this is the worst recession this country has experienced in 75 years, with unemployment climbing to 10.1 percent as the number of jobless Americans grew by more than 8.3 million, reaching a record high of 15.6 million. It doesn’t take an economist or jobs expert to recognize that it is going to take longer to get all of those people back onto payrolls.
However, the statistics indicate that the job market has made great strides over the last 12 months and appears to rebounding sooner than the previous two recessions. The latest data from the Bureau of Labor Statistics show hiring is up 10 percent from a year ago, while the number of job openings has increased by over 400,000.
Layoffs Have Fallen to Pre-2001 Lows
Evidence of improved job stability and security can be seen in planned job-cut announcements, which have shown a dramatic decline. The pace of downsizing began to plummet in the second half of 2009, with total job cuts dropping 56 percent from the previous six months. The number of planned layoffs fell another 24 percent in the first half of 2010. In fact, monthly job cuts have numbered fewer than 100,000 for 14 consecutive months, a streak that has not been achieved since 1999-2000.
Payrolls Growing Faster Than Expected
While announced job cuts have declined dramatically over the last 12 months, many complain that employers have been slow to hire. Indeed, after the estimated end of the recession in June of 2009, payrolls continued to experience net losses totaling nearly 1.1 million between July and December. However, those losses turned to gains as of January 2010, with payrolls experiencing five consecutive months of net growth that saw more than one million new jobs added to the economy.
Those gains may appear relatively anemic and will indeed need to be much stronger to begin making a dent in the high number of unemployed. However, while the payroll gains remain weak, they are occurring much sooner than previously. Following the end of the 2001 recession, it took 21 months before the economy began to add jobs on a consistent basis.
When steady job gains did occur, they were far from robust. The first five months of consistent job gains, which did not begin until Sept 2004, saw average net payroll gains of 120,000 new jobs per month. In contrast, the five consecutive months of job gains that ended in May reached an average of 201,000 new jobs each month.
Unemployment Declining Sooner
Like payrolls, the unemployment rate is beginning to improve sooner in the wake of this recession. Following the end of the 2001 recession, the jobless rate stood at 5.5 percent. It continued to climb for 19 months, peaking at 6.3 percent in June 2003. Following the nine-month downturn that ended in March 1991, unemployment continued to increase from a recession-ending 6.8 percent to a peak of 7.8 percent in June 1992, 15 months later.
At the presumed end of this recession in June 2009, joblessness stood at 9.5 percent. It increased in the months that followed, however, instead of increasing for 15 months or more, it appears to have peaked at 10.1 percent in October 2009, just four months after the end of the recession. As of July, the unemployment rate had fallen to 9.5 percent.
While joblessness remains historically high, and the decline is not occurring fast enough for most, it definitely appears to be heading in the right direction. If the economy were following the same pattern as recessions of the early 1990s or 2001, we would be facing another three to six months of rising unemployment.
Additional evidence of a turnaround can be seen in the number of Americans working part time for economic reasons, which has fallen from a peak of nearly 9.2 million last October to just under 8.4 million in July. Furthermore, the median duration of unemployment stood at 22.2 weeks in July, which was down from 25.2 weeks a month earlier. That decline may not seem significant on the surface, but it represents the largest one-month decline in the median duration of unemployment ever recorded.
When you look at any of the employment statistics on a month-to-month or week-to-week basis, there are going to be ups and downs; particularly at this stage of the recovery. However, when you look at the overall trend since June 2009, everything is headed in a positive direction. So why are people so pessimistic?
Consumers, business owners, hiring managers and politicians tend to be overly optimistic at the beginning of a recession and overly pessimistic at the beginning of a recovery. Making matters worse is that, with the mid-term elections just two months away, both parties have a vested interest in talking down the economy. Democrats want to set the bar low so they can show improvement; Republicans want things to look as bad as possible so they can take back some of the congressional seats they lost in 2008.
Obviously, for millions of Americans still out of work, the improvements are not coming fast enough. However, we must remember that the economy is digging itself out of the deepest hole this generation of workers has ever experienced. The recovery is not going to occur overnight and not without hitting some bumps in the road.