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I doubt that anyone would suggest that the recession has ended; but some news releases put a positive spin on any piece of information in order to suggest that the recovery is well underway. This opinion really depends on how you measure recovery. For example, I realize that real (inflation adjusted) Gross Domestic Product ( output ) has shown some very weak signs of growth; but, alas that growth is not sustainable unless domestic consumers are put back to work. Therefore, let’s consider both economic indicators: output and the labor market. Let’s look at the data that the Bureau of Labor Statistics (BLS) actually publishes instead of patching together bits and pieces of data in order to justifiy an uninformed or biased opinion.
The BLS reports that in March 2010, 9. 6 million previously employed U.S. workers were unemployed for over 15 weeks relative to 6 million in March 2009; and 6.5 million individuals were unemployed for over 27 weeks in March 2010, relative to 3.2 million in March 2009. The median number of weeks of unemployment as of March 2010 was 20 weeks, relative to 11.9 weeks and 8.4 weeks in March 2009 and 2008, respectively. Putting these estimates into dollar equivalents is not easy. However, suppose 6.5 million people have each lost an average annual income of $35,000 for 26 weeks. This constitutes a loss of over $1.1 trillion in wage income over a 6 month period, not to mention the federal, state and local taxes that are not paid by the households that could have earned and spent this income. During 2009, according to the U.S. Bureau of Economic Analysis (BEA), Gross Domestic Product in current dollars totaled $14.454 trillion. As of the BEA’s news release on March 26th 2010 , 4th quarter 2009 real (inflation adjusted) Gross Domestic Product (GDP) grew by +0.1 percent over 4th quarter 2008, drawing attention to the fact that the American Recovery and Reinvestment Act did not create the jobs that might have improved growth in GDP. For example, consider what the growth in GDP would have been during 2009 if an extra $1 trillion in consumer goods had been produced for 6.5 million persons who were rehired into new or pre-recession occupations instead of being unemployed for over 26 weeks during 2009. If even, half of these individuals found jobs for those 26 weeks in 2009. The growth rate in GDP would have been over + 3.0 percent based on highly simplistic assumptions that all wage income would be spent on domestic goods and services (i.e. ignoring foreign imports and trade flows).
So let’s ignore the dismal growth in GDP and just focus on conditions in the U.S.labor market. Employment and unemployment rates are often misinterpreted because the statistics can be massaged in any number of ways to find either positive or negative signs of recovery in the labor market. Moreover, the BLS only benchmarks the data used to estimate unemployment rates on an annual basis.Therefore, the intermediate estimates are revised frequently.
According to the BLS, the U.S.’ seasonally adjusted (SA) official unemployment rate was 9.7 percent in March 2010 reflecting the 11th consecutive month that this rate exceeded 9 percent. During 3 of these 11 months, the SA unemployment rate exceeded 10 percent. For comparison, during a previous recession in 1982-83, the SA official unemployment rate remained above 9 percent for 19 months ending in September 1983; and it exceeded
10 percent for 10 of these 19 months. Based on this comparison, the current recession that started unofficially in late 2008 may seem mild; but the federal government did not intervene during the 80’s with massive expenditures in order to bolster jobs by enacting the American Reinvestment and Recovery Act. In addition, the current recession is not over yet. (Source: http://data.bls.gov/PDQ/servlet/SurveyOutputServlet , US. Bureau of Labor Statistics )
Relying exclusively on the BLS' official unemployment rate as an indicator of the state of the U.S. economy or the condition of the labor market is a common practice; but it would be much more informative to focus on the multiple indicators of unemployment that the BLS provides. For example, the BLS also produces an SA monthly rate for total unemployment. The total unemployment rate includes previously employed workers who are unemployed for more than 26 weeks, part-time employees due to economic reasons, marginally attached workers who are under-employed because of the recession and discouraged workers who are no longer seeking employment because they do not believe that employers are actually rehiring. In other words, it is assumed that prior to the recession most of these individuals were full-time employees working in occupations for which they were trained and educated.
Relative to the BLS' official U.S. unemployment rate (SA) of 9.7 percent for March 2010, the BLS’ alternative measure for the SA total unemployment rate was 16.9 percent in March 2010. Therefore, one plausible reason for labeling the current recession the ‘Great Recession’ is that gap between the official unemployment rate and the total unemployment rate has never been this high in recent times (The BLS produced this data series with a starting date of 1994).
Summarizing, if the U.S. is recovering from its recession, there is little evidence of it in theU.S. labor market. According to BLS, growth in GDP for 2009 relative to 2008 was a moderately small 0.1 percent. This growth does not mean that enactment of the ARRA had no positive impact on the economy; but the labor market has not recovered. The gap between the official unemployment rate of 9.7 percent in March 2010 and the total unemployment rate of 16.9 percent reflects the severity of the employment situation because at least 6.5 million previously employed workers have lost their jobs and were unemployed for more than 27 weeks in 2009 and 9.2 million have lost their jobs and were unemployed for 15 weeks. These are historically high numbers that cannot or should not be confused with employment statistics that focus on the month over month gains and losses in new jobs.[/SIZE]
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