|
ARCHIVE
|
Special Report
February 17, 2009
|
Legislative Preview, Election Law, Immigration
January 28, 2009
|
Water Rights, Mountain Megas, Western Climate Initiative
December 17, 2008
|
Ethics, Generations in the Workplace, Elections
November 19, 2008
|
Government Employment, Health System Reform, Presidential Elections
October 29, 2008
|
[MORE]
|
|
|  |
|
|
How Bad is the Economy, Really?
An Historical Look at Utah, the US and Recessions
by Janice Houston, Sr. Policy Analyst, CPPA
Introduction
The economic downturn is topic number one among the media,
policymakers and much of the general public. As the numbers contained in
reports from the Bureau of Labor Statistics on job losses and the rising unemployment
rate are discussed at length among these groups, there is very little effort to
put the current downturn into a historical perspective. This article reviews
national and state level data on jobs, unemployment, housing, and consumer
sentiment to provide some perspective on these figures and what they mean for
Utah.
Employment
The indicator that has been garnering a lot of attention
recently is the national jobs count. The 3.57 million jobs that have been lost
since the recession started in December 2007 are a significant number. However,
at 2.6% of the total jobs in the U.S., these losses are not as large as have
been seen in previous recessions. Figure 1 compares job losses in each
recession since 1945.
Figure
1: Recessions and U.S. Job Losses-A Historical Perspective 1945-Present
|
Recession
|
Number of
Months
|
Peak Employment
|
Month Peak Employment Obtained
|
Number of
Jobs Lost During Downturn
|
Lost Jobs as
a Percent of Total Jobs
|
Number of
Months to Return to Pre-Recession Employment
|
Feb-Oct
1945
|
9
|
41,903,000
|
Feb-45
|
3,305,000
|
7.9%
|
9 (Jul-46)
|
Nov 48-Oct
1949
|
12
|
45,194,000
|
Nov-48
|
2,244,000
|
5.0%
|
9 (Jul-50)
|
Jul 53-May
1954*
|
11
|
50,536,000
|
Jul-53
|
1,571,000
|
3.1%
|
13 (Jun-55)
|
Aug
57-April 1958
|
9
|
53,128,000
|
Aug-57
|
2,102,000
|
4.0%
|
12 (Apr-59)
|
Apr 60-Feb
1961
|
11
|
54,812,000
|
Apr-60
|
1,256,000
|
2.3%
|
10 (Dec-61)
|
Dec 69-Nov
1970
|
12
|
71,453,000
|
Mar-70
|
1,044,000
|
1.5%
|
10 (Sep-71)
|
Nov 73-Mar
1975*
|
17
|
78,634,000
|
Jul-74
|
2,115,000
|
2.7%
|
11 (Feb-76)
|
Jan 80-Jul
1980
|
7
|
90,991,000
|
Mar-80
|
1,159,000
|
1.3%
|
6 (Jan-81)
|
Jul 81-Nov
1982*
|
17
|
91,594,000
|
Jul-81
|
2,838,000
|
3.1%
|
11 (Nov-83)
|
Jul 90-Mar
1991*
|
9
|
109,775,000
|
Jul-90
|
1,579,000
|
1.4%
|
23 (Feb-93)
|
Mar 01-Nov
2001*
|
9
|
132,500,000
|
Mar-01
|
2,678,000
|
2.0%
|
39 (Feb-05)
|
Dec
07-Present
|
14
|
138,152,000
|
Dec-07
|
3,572,000
|
2.6%
|
TBD
|
Source:
US Bureau of Labor Statistics,
Current Employment Series
(CES), Seasonally Adjusted
Data and National Bureau
of Economic & Business
Research, Business Cycle
Dating Committee
|
*Jobs in
these recessions hit their low point after the recession was official
declared over. For most, this low point was within a few months. The 2001
recession is the exception--jobs did not reach the trough until August 2003,
when total nonfarm jobs reached a low of 129,882,000.
|
As the chart shows, the current recession is now one of the
longest since 1945—exceeded only by the downturns of 1973 and 1981. The current
jobs losses are not nearly as severe as those experienced during five previous
recessions, when measured as a percent of total jobs.
Perhaps the most concerning information this analysis
provides is the fact that U.S. job recovery is taking longer with each
downturn, especially since the 1981 recession. The recession of 2001 only
lasted nine months, but the economy didn’t stop shedding jobs until March 2003,
when employment bottomed out at 129,822,000 jobs. From that point, it took
almost two years for the economy to recover to pre-recession levels. While
there were some extenuating circumstances associated with the 2001 recession
(9/11 and the collapse of the dot.com bubble), job losses during that recession
followed a pattern very similar to the one seen in the 1990 recession. This
suggests that the U.S. economy is becoming less able to replace jobs lost in
the goods-producing sectors (such as manufacturing and construction) by job
growth within the service-producing sectors. Further analysis of the data
series supports this theory.
When total employment recovered from the 1981-82 recession
in November 1983, there were 260,000 more jobs in the country than in July
1981. When the jobs created by non-governmental entities were compared, there
were still significant losses in the good producing sectors, approximately 1.6
million. The service sector, however, gained 2.04 million jobs. So, for every
job lost in manufacturing, construction and natural resources, the economy was
able to replace it with 1.27 jobs in the service sector. By the 2001 recession,
the replacement ratio was down to 0.75—private service sector gains were only
replacing three-quarters of the jobs lost in the goods sectors. Figure 2
details this information for each recovery following a recession. It is
important to note that “recovery” in this context only means when total jobs
first exceed the number that was posted as peak employment prior to or during
the recession preceding it in Figure 1. As an example, employment reached a
peak in February 1945 at 41,903,000. It took until July 1946 for the economy to
exceed that number with employment reaching 42,153,000. So, of the 250,000 jobs
added, 1.4 million were in the service sector while the goods producing sectors
lost 1.2 million.
Figure
2: Composition of U.S. Job Gains and
Losses for Goods Producing and Service Producing Sectors During Economic
Recoveries
|
Jobs
Recovery Date
|
Net Jobs
Gained
|
Goods
Producing
|
Service
Producing
|
Private
Service Producing
|
Government Producing
|
Ratio
Service Producing
|
Ratio
Private Service Producing
|
Ratio
Government
|
|
Jul-46
|
250,000
|
-1,203,000
|
1,453,000
|
2,010,000
|
-557,000
|
1.21
|
1.67
|
-0.46
|
|
Jul-50
|
259,000
|
-135,000
|
394,000
|
173,000
|
221,000
|
2.92
|
1.28
|
1.64
|
|
Jun-55
|
254,000
|
-579,000
|
833,000
|
536,000
|
297,000
|
1.44
|
0.93
|
0.51
|
|
Apr-59
|
192,000
|
-459,000
|
651,000
|
266,000
|
385,000
|
1.42
|
0.58
|
0.84
|
|
Dec-61
|
59,000
|
-465,000
|
524,000
|
222,000
|
302,000
|
1.13
|
0.48
|
0.65
|
|
Sep-71
|
167,000
|
-1,088,000
|
1,255,000
|
790,000
|
465,000
|
1.15
|
0.73
|
0.43
|
|
Feb-76
|
183,000
|
-1,569,000
|
1,752,000
|
1,059,000
|
693,000
|
1.12
|
0.67
|
0.44
|
|
Jan-81
|
40,000
|
-666,000
|
706,000
|
642,000
|
64,000
|
1.06
|
0.96
|
0.10
|
|
Nov-83
|
260,000
|
-1,604,000
|
1,864,000
|
2,042,000
|
-178,000
|
1.16
|
1.27
|
-0.11
|
|
Feb-93
|
192,000
|
-1,556,000
|
1,748,000
|
1,406,000
|
342,000
|
1.12
|
0.90
|
0.22
|
|
Feb-05
|
220,000
|
-2,372,000
|
2,592,000
|
1,785,000
|
807,000
|
1.09
|
0.75
|
0.34
|
Source:
U.S. Bureau of Labor Statistics, National Current Employment Series, Ratios
calculated by author
|
With the exception
of the 1945 recession, when the government was decommissioning a large military
infrastructure from World War II, and the 1981 recession, when Ronald Regan was
downsizing federal jobs, government has contributed to every recovery. The
influence has been fairly small (1950 being the obvious exception) but without
those jobs, recovery would have taken longer. Indeed, in the current downturn,
without the 170,000 jobs government has added since December 2007, the
employment situation would be even grimmer. Besides government, only the
private education and health services (EHS) sector, and the natural resources
sector are adding jobs. Since the start of this recession, EHS has added
573,000 jobs nationally while the natural resources sector has added 47,000.
Most of the current job gains in natural resources are in response to the
uptick in crude oil prices. If prices stay low or fall further, many of those
job gains could evaporate. Excluding those natural resources jobs, there are
only two employment sectors keeping the job situation from going into
free-fall. In most prior recessions, there were at least four sectors that were
still gaining jobs. The exceptions were the 1958 recession in which only the
financial activities and government sectors added jobs and the 1990 recession
in which job losses were offset by gains in EHS. Both of these prior recessions had fairly severe job losses
overall and by this indicator alone, the current recession isn’t going to be
much better.
Unemployment
From January 1976 through December 2008, the average
unemployment rate for the U.S. has been 6.2%. The monthly rate reported by the
US Bureau of Labor Statistics (BLS) for December 2008 was 7.1% or roughly one
percentage point above that average. The highest rate recorded was January 1983
when the rate registered at 11.4%. BLS records do not go further back than
1948, so there is no official government rate during the Great Depression, although
it has been estimated that one in five white males was out of work.[1]
Figure
3 provides the monthly unemployment rate for both the US and Utah from 1976
to the most current figure—December 2008. As the graphic indicates, Utah has
generally weathered recent economic downturns better than the nation as a
whole. January through June 1987 has been the only time period in which Utah’s
unemployment rate exceeded the national average. In the current recession,
Utah’s unemployment rate has lagged well behind the national average although
the rate is starting to climb; it has not yet reached the state’s historical
average of 4.9%.
Policymakers should keep in mind that official unemployment
figures do not take into consideration two key issues with a recessionary job
market. First, it does not count workers who lose their job, can’t find another
and exit the labor market altogether. Nor does it count underemployment—that is,
workers who lose their job but find another at significantly reduced wages
and/or hours. These two groups can have a more lasting impact on government
resources than those that are classified as unemployed.
Housing
The role of the housing sector as a driver of this recession
has been well documented. [2]
For a macro-economic perspective, what is troubling is that the indications of
a problem, at least for some metropolitan areas, date back to at least 2005.
The US Census Bureau performs a survey of housing vacancies quarterly. Data are
available for the nation, regions, states and the 75 largest metropolises with
very little lag time. This survey tracks the percentage of homeowner vacancies,
as well as rental vacancies and homeownership rates. Historically, homeowner
vacancies are very low, averaging around 1.5% of total housing stock. Reasons
for these vacancies can be situations such as when a house is in the process of
being sold and is not occupied or a second home that is only seasonally
occupied or one in which the owners simply abandon the structure. Prevailing
economic wisdom suggests that if this rate exceeds 3.0%, then there are
fundamental issues with the housing market—overbuilding of new units, pricing
issues, etc.[3] According
to the Census Bureau, that 3.0% threshold has not yet been exceeded at the
national level. However, if the data for some of the most distressed
metropolitan areas are reviewed—the Las Vegas-Paradise metropolitan statistical
area (MSA) breeched 3.0% in 2004 on the way to a high of 7.7% reached in second
quarter of 2008. The
Phoenix-Mesa-Scottsdale MSA hit 3.1% in 2006 and is currently around 3.7%,
indicating that problems began in these areas long before the housing sector
collapsed.
Fortunately, the Salt Lake City MSA appears to be in much
better shape. Vacancies hit a high of 2.7% in 2006 and have been declining
since. For the state, the rate in the fourth quarter of 2008 was 1.9%. Figure
4 provides the quarterly rates for Utah, the Intermountain West and the U.S. from
1986 (the first year state-level data was available) to the present. With the
exception of 2002 and the unique real estate circumstances around the 2002
Winter Games, Utah’s housing vacancies have seemed to level off from the
volatility shown in the mid to late 1980s.
Consumer Sentiment
The three previous indicators
of economic health are what
are commonly called lagging
indicators. This means they
give us a look in the “rearview
mirror” after the fact. It
takes companies some time
after a downturn to begin
to lay off workers. It takes
some time, as well, for people
to be placed in the situation
of having to sell a home or
walk away from it. However,
before these things happen,
businesses and consumers start
to feel uncertain about the
economy. This uncertainty
leads to a reduction in spending.
This reduction then can spiral
into a full-blown recession.
The Consumer Sentiment Index
is a product of the University
of Michigan that tries to
gauge that uncertainty as
it happens. Figure
5 graphs
the index from 1978 (the first
year monthly data were available)
to the present. The index
is tied to the economic situation
in 1966, which was given a
numeric value of 100. Surveyors
with the project ask a series
of questions to consumers
and then compare the responses
to those given during 1966.
Therefore, it is possible
for the index to exceed 100.
The index has never dropped
below 50—which would indicate
very discouraged consumers.
As is shown,
consumer sentiment hit its low point during the 1980 recession. May 1980
registered a 51.7. The current recession almost hit that low point, registering
55.3 in November 2008. This recession has also seen the largest drop—12.7
points from September to October 2008—that has been registered in the
index. While sentiment has rebounded a
little since November, it is still well below the average of 87.2. This
indicates that it will be some time before private sector consumption rebounds
to anywhere near pre-recession levels.
Conclusion
So what does all this mean? This article echoes the
sentiment of many economists—it is going to be a while before the nation pulls
out of the recession. Could it get as bad as the Great Depression? It remains
to be seen. The perspective policymakers need to keep in mind that during the
darkest days of that downturn, 1929-1933, gross domestic product (GDP), as the
broadest indicator of the economy, declined by 23.3% in 1932 alone and by 45.6%
over the four year time period. Currently, GDP isn’t even close to those levels
of decline.
That being said, today’s economy is much larger and more
intertwined than that of the 1930s. Data presented in this article suggests
that recovery is going to be very slow and that the service sectors of the
economy cannot be counted on to counterbalance the goods producing sectors, as
has happened in past recessions.
Finally, Utah has weathered
recent recessions better than
other states. However, Utah’s
industry mix is more tied
to national trends now than
in the past. The state may
be in for an economic downturn
that does not fit with past
ones. Therefore, policymakers
at all levels need to be prepared
to deal with something more
serious than has been seen
in recent memory.
[1] This
working paper from the Federal
Reserve Bank of Philadelphia
discusses the unemployment
rate during the Depression
vis-a-vis the amount of government
and private sector “effort”
it would take to recover from
similar circumstances today
|
|
| |
|
|
|
LETTERS
|
|
There are no letters for this article. To post your own letter, click Post Letter.
|
|
[POST LETTER]
|
|
|
|
