Commentary Magazine


Recovery Woes

Nouriel Roubini writing in Forbes provides some useful analysis of recent job-loss figures and the prospects for recovery. He writes:

Looking at the recessions of the post-war period, average monthly job losses ranged between 150,000 and 260,000. Average monthly losses in this recession are still at 350,000. For the first four months of the year, the average was at 648,000. The improvement with respect to the first part of the year is clear. The improvement with respect to what we are used to seeing in recessionary periods is much less clear cut. The latest numbers are not exactly what you’d call good news, at least not in absolute terms. In relative terms, however—after skirting a near-depression—markets seem to consider 247,000 payroll losses a breath of fresh air.

[. . .]

For the labor market to stabilize, job losses need to slow to 100,000 to 150,000 per month, and jobless claims need to fall to around 400,000. Payrolls alone don’t reflect the strength of the household sector. Labor compensation and work hours also function as indicators, and both of these have slowed sharply in recent months. Even as borrowing conditions remain tight and home prices continue to fall, the dip in labor compensation will continue to constrain consumer spending, notwithstanding any fiscal stimulus.

In a severe, consumer-led recession like this one, the labor market is a leading (rather than lagging) indicator of economic recovery, and the consumer still drives the U.S. economy (private consumption still makes up over 70% of GDP). A slowdown in the pace of job losses from 650,000 to 250,000 is welcome, but in no way offers comfort about a prompt comeback of the U.S. consumer. This raises concerns about the strength and sustainability of any economic recovery that most people are expecting in the second half of 2009, and beyond.

And, he reminds us, so long as consumer spending remains weak, the recovery is likely to be sluggish, rendered even more anemic by “unsustainable public debt, higher structural unemployment, lower credit growth and higher taxes in the future.”

For states with double-digit unemployment, the prospect of persistent unemployment is now a fact of life. As a reader has pointed out to me, Ohio’s state-budget plans now assume a “baseline” unemployment rate of 11.6% in the first quarter of 2010 and a worst-case scenario of 12.4%. That is more than two years after the onset of the recession.

Certainly, “recovery” is in the eyes of the beholder, but if Roubini and state planners are correct, any recovery will be such in name only until we refocus our economic policies on promoting growth, investment, and hiring. That unfortunately is not on the Obama agenda.