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July 2010
A Robust Rebound to Mediocrity?
A robust job recovery is under way. But our desire to celebrate is tempered by the realization that the strong steady growth we expect for the next several years will only get back what we needlessly lost.
By Dr. Peter Linneman, PhD
Chief Economist, NAI Global
Principal, Linneman Associates
Through August 2008, we were in a typical recession concentrated in housing, autos and a financial sector that financed the over expansion of these sectors. Then the government caused a complete panic-induced collapse,which resulted in the loss of at least 6.2 million jobs. The needless job losses are underscored by the fact that only4.6 million (about 55%) of the total 8.4 million lost jobs since year-end 2007 were in manufacturing (including autos), construction or finance.
Historically, you need about six quarters of prolonged profit growth before companies hire aggressively. A robust job recovery is under way, with profitable employers finally replacing employees who died, retired, took extended maternity leave or went back to school. Unfortunately, many small firms were needlessly destroyed as the government artificially channeled scarce capital to large, politically connected firms. As we have said repeatedly, “too big to fail”is code for “too small to succeed."
An improving job market is evidenced by: a 1.5% increase in the number of weekly hours worked since June 2009; a 12% decline in “marginally attached”workers from 2.5 million in February 2010 to 2.2 million in May; a year-over-year increase in Temporary Help Service workers; and an increase in the number of employees quitting because they have improved options. Marginally attached workers include those who want a job, have searched for work during the prior12 months and were available to take a job, but had not looked for work in the past four weeks. Declining levels are an indication that more people are either getting jobs or are actively looking. The increased use of temp workers reflects a rebounding workforce, as temp workers are a flexible means of increasing employment in the early stages of a recovery. Temporary help services increased employment by 175,000 jobs over the first five months of 2010.
Based on the Payroll Survey, total employment peaked in December 2007 with nearly 138 million jobs, and bottomed two years later with 8.36 million fewer jobs. Since year-end 2009, we have gained back 982,000 jobs through May.In comparison, the Household Survey, from which unemployment statistics are calculated, indicates that employment peaked in November 2007 at just under146.5 million jobs, bottomed in December 2009 at almost 8.7 million lower, and has since grown by over 1.6 million. Of those lost jobs, 5.2 million were concentrated among males older than 19, and only 1.9 million among women older than 19. This reflects the high concentration of males in manufacturing,construction and finance, while women are disproportionately employed in the less adversely impacted government, health care and education sectors.
We anticipate that the next three years will continue to see average job growth of 250,000 jobs per month, for a three-year job increase of at least 9 million jobs by early 2013. This robust recovery will be due primarily to the restocking of jobs vacated during the panic, rather than a net employment expansion.While this robust job growth may seem overly optimistic, it is important to remember that our forecast would leave us with almost the same number of jobs in mid-2013 as existed at the beginning of September 2008, in spite of a population that will have grown by 15 million people. In fact, employment today is at the same level as in September 1999, despite the fact that population has grown by more than 25 million people. If we have a robust recovery, adding 9million jobs over the next three years, we will still have an anemic unemployment rate of 7%. Hence, we expect a robust rebound to mediocrity......
Dr. Peter Linneman is NAI Global's Chief Economist and professor at the Wharton School of Business, where he was the founding chairman for Wharton's Real Estate department and has been on faculty since 1979.
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