RateWatch #368 – Jobs
August 9, 2003 by Dick Lepre

What's Happening

With the Treasury refinancing having gone fairly well, we may have see that dip in yields that we were talking about. The FOMC meets next Tuesday.  Nothing is expected there.  With higher yields on MBS and little angst regarding very early payoffs we have seen funds flow from corporate and government bonds into MBS.  Note that, despite the short-term prediction for some recovery (lower rates), the longer term picture is still bearish and uncertain.

The Jobs Market

From "Get a Job" - a 1957 Doo-Wop classic
by The Silhouettes

And when I get the paper, I read it through and through
My girl never fails to see if there is any work for me.
Then I go back to the house, hear that woman's mouth
Preaching and a-cryin', tellin' me I'm lyin' about a job
That I never could find.

The guy who wrote those lyrics would have a point today.

There is a problem in the labor market in the U.S. More people are out of work than is acceptable. With a presidential election coming next year, this is becoming the big issue. Talking about GDP and CPI doesn't cut it with voters. Talking about jobs always gets attention.

When things get political they sometimes fall outside the realm of objective reality.  For example:
According to presidential candidate Howard Dean, "since this Administration took office, over
3.1 million jobs have been lost the worst job creation record in over 60 years." Well, sorta.

Civilian Employment in January 2000 peaked at 137,846,000 in July 2003 it was 137,478,000. 
Essentially, employment has stagnated for 3+ years. Total non-farm employment (which does not include the Federal government and the military has fallen since 2/2001.

In essence, what has happened in the past 3.5 years is that the population has increased but the number of jobs has not. The irony of the Dean comments is that the government that he is dissing has taken up the slack created by lost private sector jobs. This is not atypical in a recovery situation.  It makes sense for the government to take up the slack for a common public benefit. But Dean has a point.  We are not Communists. Private sector jobs drive the economy. The question is: why have jobs stagnated? 

The situation is often referred to as a "jobless recovery." This term refers to economic recovery
(GDP growth) without any increase in jobs.  A similar situation occurred when we came out of the recession that ended in March 1991. At that time it took an additional 34 months for the
unemployment rate to get back to where it was when GDP started falling.

I do not think that there is any one overpowering reason why this is happening. Try these:  normal
business cycles, extraordinary cycles in the dot-com and telecom industries, the effect of 9/11 on the airline, aircraft and hospitality industries, international recession, competition from abroad for tech jobs, productivity growth resulting from high-tech gear and the tendency for jobs to be the
last thing to recover post-recession.

There are two discernable types of recessions.  One is "the average recession."  This is the result
of Keynesian business cycles.  The economy just cools off and then it improves. When it improves, business starts hiring soon thereafter.  The second is the "reaction to the extraordinary change recession."  This occurs subsequent to an extraordinary event or series of events which expands the economy and then stops. It is the latter that we have now.  The problem is that it takes much longer to regain these jobs because they resulted from extraordinary events.
In this case it was the IT boom, the Internet thing, the dot-com and telecom booms.  All of these
occurred in the '90's and ran out of gas. There is nothing that is going to quickly bring back the
dot-com jobs and the telecom jobs.  In short, they will take a long time to replace. There is little
that George Bush, Howard Dean, Gray Davis or Arnold Schwarzenegger can do to bring them back.

In addition we have the results of 9/11 and the hit to the airline and hospitality industries.  I do not
think that anyone sees the airline industry coming back in its old format.  The newer airlines seem more like Costco.  The emphasis is on reduced prices and service i.e. fewer jobs.

The jobless problem is not merely an American problem. According to figures released this past
Wednesday, Germany's jobless rate rose to 10.4 percent in July with 94,500 more people out of
work than in the previous month amid stagnation in Europe's largest economy. Additional
international unemployment rates are as follows: France 9.1%, Italy 9.0%, Spain 11.3%, Sweden 5.4% and Japan 5.4%.

In short, it is going to take up to another two years for the jobs market to recover.  The recovery will not occur from the top down.  It will recover from the bottom up.

To receive this free RateWatch newsletter each week by e-mail, click here.
To view the archive of RateWatch newsletters, click here.