A Jobless Recovery? Not This Time
By Christopher Farrell
Tough luck if you're out of work. That's the word out on the Street. Many Wall Street economists are downright dour about the job market. This, they say, is shaping up to be a "jobless recovery."
It's easy to connect the dots: The economic rebound is tepid. Big companies are still handing out pink slips. And businesses are wary of adding workers when management keeps striving to wring greater efficiencies from high-tech equipment.
Shades of 1992? A jobless recovery took place back then as the unemployment rate climbed long after the recession was over. Specifically, the jobless level was at 6.8% in March, 1991, when the recession officially ended and the cyclical upturn began. Unemployment dipped to 6.7% in April but then climbed to a peak of 7.8% in June, 1992. The rate didn't drop below 6.7% until November, 1993 -- nearly three years after the expansion started.
Don't sell the Great American Job Machine short, though. The other day, driving along the main artery connecting St. Paul and Minneapolis, I saw a large yellow banner saying "Wanted: Machinists and Precision Grinders." Although business is down overall from a year ago, activity at Minnesota Grinding is up some 20% to 30% in recent months, enough to justify hiring two to three skilled workers.
Two to three jobs at a small company. No big deal, right? Well, it is, because the anecdote dovetails nicely with emerging labor-market trends nationwide. Companies boosted their payrolls by a modest 41,000 in May. The National Federation of Independent Business says its members are putting up "help wanted" signs. ManPower, the nation's largest temp agency, reports that employers are rapidly ramping up their temp hiring plans.
The recent Philadelphia Federal Reserve survey of regional economic conditions had companies hiring for the first time in 20 months. And the pace of corporate layoffs is down about a third from a year ago. Last month, announced job cuts fell to 84,978, the first time in 12 months that the count came in under 100,000, according to Chicago consultants Challenger, Gray & Christmas.
The recent history of the American economy is how it bounced back from the twin blows of recession and terror far faster and in much better shape than most of us thought possible. Coming out of the mildest recession in U.S. history, the economy still has momentum. Consumers are the economy's pillars, but the manufacturing sector is also starting to pick up, and the dollar's recent decline may boost sales abroad.
Investment in high-tech equipment is starting to come back, although slowly. Most heartening, productivity growth is robust. It's running at a nearly 6% annual pace over the last three quarters (assuming a 4% rise in the second quarter of 2002). That pace is clearly unsustainable, but the potent combination of technological progress and organizational innovation translates into a high-productivity economy that can grow at a 3.5% to 4% rate without generating inflation -- and create lots of jobs in the process.
Of course, there's the nagging fear that efficient machinery makes labor redundant in today's economy. Corporate America has invested enormous sums in sophisticated high-tech gear. Management also has demonstrated a ruthless drive to work remaining employees hard. Restructuring, reengineering, downsizing -- pick your favorite buzzword -- they're all permanent parts of management's toolkit. Still, in the second half of the 1990s, productivity ran at its highest level since the 1960s, and the unemployment rate dropped to its lowest level since John F. Kennedy was President.
Remember, it wasn't all that long ago that business complained bitterly about labor shortages. Minorities, low-income women, high-school dropouts, and newly arrived immigrants all found work as employers struggled to fill orders and meet demand. Today, the 5.8% unemployment rate is below the 6.2% average rate for the past 20 years. Both labor-force growth and job growth are projected to expand at an average annual rate that will be just a fraction less than 1% from 2002 to 2010, according to calculations by Economy.com.
So it won't take much of an improvement in economic activity for the drum-tight labor market to quickly reassert itself. Odds are the 2002 expansion won't be a jobless recovery. In fact, it could well turn into the labor-shortage rebound.
Farrell is contributing economics editor for BusinessWeek. His Sound Money radio commentaries are broadcast over Minnesota Public Radio on Saturdays in nearly 200 markets nationwide. Follow his weekly Sound Money column, only on BusinessWeek Online
Edited by Beth Belton