Friday's news of a drop in the unemployment rate to 10 percent is a welcome development. It was presaged by earlier strength in reliable leading employment indicators, which suggest that this improving pattern will persist next year. In November, employers cut the fewest jobs since the recession began, but how should Americans interpret this information? With unemployment in double digits for the first time since 1983, many still worry about the jobless recovery.
The post-recession dip in joblessness is the good news. But, looking ahead to the later phase of the expansion, the post-World War II period shows disturbing cyclical patterns.
The jobless rate usually sees a sizable drop during the economic recovery -- and bigger recessionary spikes in unemployment are typically followed by larger declines during the first year of improving unemployment. So it would be no surprise if, a year after the unemployment rate begins to drop, it falls to the 9 percent range.
The real problem is that the rate of decline in joblessness slows during the rest of the economic expansion. The annual post-war pace of decline in unemployment during these periods has been reasonably uniform, the median being 0.5 percent a year.
If that pattern persists, the U.S. economy needs to keep expanding without interruption until 2020 for unemployment to fall to its pre-recession low of 4.4 percent. Should the next recession arrive earlier, as we suspect, it will take much longer. The implications constitute nothing short of a wake-up call for policy makers who promise to get job growth back on track.
Since World War II, there has been a clear easing pattern in the trend rate of economic growth during expansions, culminating in the 2001-07 expansion, which showed the slowest trend rate of growth on record -- especially in terms of jobs. Ominously, during expansions following the initial year of revival, growth in non-manufacturing employment has been falling in a parabolic fashion since the 1970s. A continuation of this pattern would lead a much worse job market than almost anyone expects.
The "great moderation" of business cycles once extolled by many economists, including Federal Reserve Chairman Ben Bernanke, is history. The trend rate of growth is shriveling. In other words, business cycles are back with a vengeance.
The real risk is of more frequent recessions repeatedly aborting cyclical downswings in unemployment in coming years. Some consolation comes from the fact that past performance does not dictate destiny, and extrapolation from past patterns is not a reliable forecasting method, especially if the pattern is about to change.
It is at least conceivable that either enlightened policy measures, or good luck, or both, will result in a decisive break from these patterns. The silver lining is that even an economy dipping in and out of recessions and keeping joblessness cycling near historical highs is a navigable one for decision-makers who keep a closer watch for recessions and recoveries.
Lakshman Achuthan is managing director of the Economic Cycle Research Institute. He is a member of Time magazine's board of economists, and co-author of Beating the Business Cycle: How to Predict and Profit from Turning Points in the Economy. Anirvan Banerji is the director of research for the Economic Cycle Research Institute and a RealMoney.com contributor.
You call that a silver lining?
Despite 2 BS degrees, I was unemployed and/or homeless for almost 1/2 of the 1990s (living in an economically depressed area; the Clinton economic expansion made it to the area in 2001, after I left.). Despite being very good at what I do - good enough to see my salary increase by almost 60% in under 4 years - I've been unemployed or underemployed since 2007. I am about to become homeless since I cannot pay my rent nor will I be able to rent another place, not with income averaging $400/month.
I never expected anyone to hand me anything for free. I went to school, I work hard and there is nothing I can't do, only what I can't do YET. I'm 48 years old! I figured I would have to work until I was dead, punishment for not having saved anything for retirement. If all we can expect is more of the same, ie. cyclical high unemployment, then officially declare me retired and allow me to get SSI. It won't support me completely but with my part time employment, at least I wouldn't have to worry about living on the street AGAIN.
I feel very strongly for you. You've lived by the rules in a game that was fixed. I have a similar experience, but I can tell you my own retirement money, more than $90,000, just melted away because I could not survive without tapping into it & I wasn't allowed a hardship. Even if you had saved/invested, it would have been no guarantee.
I've noticed people taking ANY job, and people simply no longer looking, entering early retirement, and people cutting back on consumption.
The loss of overall income to America will continue so long as we just import unemployment by outsourcing jobs without end while importing people via H1-B.
We need a specific plan to change the foundations of the nation's economy. I hope we get one.
Those figures don't allow for the people who are simply "defined" out of the workforce. For instance, the number of "discouraged" workers - literally people who have given up looking - increased by 53,000 to 861,000. In other words, more people "left" the official unemployed pool than joined it...even though they didn't actually find a job. Incidentally, that's the most "discouraged" workers since the recession began...which is pretty discouraging.
administration has to pay lip service to job growth, a few social programs, tax checks, print money, etc till they kick the can to the next guy.
Think about it ... even if every unemployed person in America were to get a $3000 monthly check,
it costs the US only $45 Billion a month, and less than $800
$3000 * 15 million = $45 billion * 18 months = $810B
The real cost is far less. So think about it .... you can become president too if you promise big business/India/China that they can have our jobs ... selling a cost of a few hundred billion over a 4 or 8 years to the taxpayer is not all that difficult for a politician. Selling it to the opposing party is a little more difficult ... simply cut back room deals.