In the “new” economy, economic recovery no longer translates into job recovery

Posted by AzBlueMeanie:

Remember the "new" economy that Bill Clinton talked about in the 1990s? Our economy was transformed from a manufacturing economy that produced goods and services for domestic consumption and export, to an "information age" economy weighted heavily in information technology and a financial services sector that generated huge "profits" based upon risky bets placed on exotic investment devices in the new casino capitalism of Wall Street.

The "dot-com" information technology bubble burst on Wall Street in 2000 followed by a "mild" recession that began in February 2001 and ended in November 2001. The economy never returned to the baseline level of employment that existed prior to the recession before the Bush "recovery" ended. (If you'd like to compare post-World War II recessions graphically, the Federal Reserve Bank of Minneapolis has a cool tool here.)

The casino capitalism financial services sector bubble unleashed in 2000 led to huge profits for speculators in exotic investment devices, including bundled derivatives in subprime loans. A small number of people at the top of the economic food-chain became spectacularly wealthy during what was dubbed the Bush "recovery," such as it was. The bubble began to burst in 2006 and nearly destroyed the world's financial markets and economy by September 2008. The Bush "recovery" ended in economic panic and the country staring into the abyss of a second Great Depression.

The economic recovery in GDP following the 2001 recession was the weakest recovery since the Great Depression. The jobs recovery performance was even worse. Over the past decade, not a single net new job was created. As a result of the "Great Recession" that began in December 2007, what little job recovery there had been previously was entirely erased. It is the first time since the Great Depression that fewer jobs existed at the end of the decade than existed at the beginning of the decade.

Economists frequently cite the baseline number of 150,000 jobs that must be created each month just to keep pace with population growth and new workers entering the workforce in the economy. You do the math over the past decade. President Obama took office in a very deep hole more than a decade in the making.

Last Friday, the release of the government's monthly job report capped off a week of more than usual positive economic news. Hiring makes best showing since March 2007, Jobless Rate steady at 9.7%:

The Bureau of Labor Statistics stated in its seasonally adjusted report that some 162,000 new jobs were created in March, the best showing since March 2007, but somewhat below the consensus of experts surveyed earlier in the week. The official unemployment rate held steady at 9.7%. Some 15 million Americans are officially out of work.

The U6 unemployment rate, an alternative measure that includes underemployed Americans as well as a portion of those too discouraged to have looked for jobs recently, rose to 16.9%. The number of long-term unemployed, those without jobs for 27 weeks or more, rose to 6.5 million. The chart below shows the total number of unemployed in both U3 and U6 gauges.

^{Click for larger version.}

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Employment rose in construction, manufacturing, health care and temporary services. It held steady in transportation and warehousing, leisure and hospitality, the retail trade, and wholesale trade. There were losses in the information industry and financial services.

BLS revisions lowered the job losses in January from the 26,000 reported last month to a gain of 14,000 and reduced the job losses for February from 36,000 to 14,000. Average hourly earnings fell 0.1% in March.

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Many analysts, including Atlanta Fed Chief Dennis Lockhart, say it will take 200,000 new jobs generated each month for a year to bring the unemployment rate down 1%. At 200,000 a month, it would take until October 2013 before the number of employed Americans equaled those with a job in December 2007, when the recession began.

Some commentators have begun calling this the "bikini graph." Thanks for that image. As you can see, the economy is no longer in free-fall and hemorrhaging jobs, but it has "troughed" and is slowly but surely climbing out of the hole into positive job growth.

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The Institute for Supply Management reported that manufacturing activity was up for the eighth consecutive month, with a rate of growth faster than any since July 2004. Factory orders, particularly in durable goods, are so positive at a 0.6% month-to-month rise that they are beginning to merit the description of "robust." And retail sales at chain stores were also up 0.6% for the week, which means they are on target to top 3% or more for the whole month compared with last year's dismal record.

Motor vehicle sales were up as well, to a seasonally adjusted annual rate of 11.8 million, a vast improvement over February, but lower than expected and about equal with the trough in the 1990-91 recession, when there were many fewer Americans to buy cars and light trucks. Personal income was reported flat for February, but that may have been in part because of severe weather and could rise significantly in the March report given the increase in payroll announced today. Consumer confidence rose above the weak February numbers, but not much.

Former Clinton Labor Secretary Robert Reich cautions at his blog No Jobs Recovery:

[I]n March, the federal government began hiring census takers big time. These are six-month temp jobs, and they tell us nothing about underlying trends in the labor market. It's hard to gauge precisely how many were hired – probably between 100,000 and 140,000, although some estimates put the hiring as low as 48,000. Almost a million census workers will need to be hired over the next few months. Subtract these, and today's job numbers are good but nothing to write home about.

There are some positive signs. Manufacturing payrolls expanded a bit, heath care employers added 27,000 jobs, and about 40,000 private-sector temp jobs were added. But payrolls continue to be slashed in financial services and the information industry.

Two big things to bear in mind:

First, government spending on last year's giant stimulus is still near its peak, and the Fed continues to hold down interest rates. Without these props, it's far from clear we'd have any job growth at all.

Second, since the start of the Great Recession, the economy has lost 8.4 million jobs and failed to create another 2.7 million needed just to keep up with population growth. That means we're more than 11 million in the hole right now. And that hole keeps deepening every month we fail to add at least 150,000 new jobs, again reflecting population growth.

A census-taking job is better than no job, but it's no substitute for the real thing.

Bottom line: This is no jobs recovery.

The "new" economy simply cannot create the massive number of new jobs needed to climb out of the unemployment hole, even during an economic recovery and expansion. It is not a labor intensive economy. Free Trade and economic globalism have shipped labor intensive U.S. manufacturing jobs overseas over the past 30 years. Those manufacturing jobs are not coming back, and continue to leave.

Yet we have millions of Americans in long-term unemployment and millions of Americans who have entered the workforce over the past decade unable to find gainful employment. We are creating a permanent underclass of unemployed, due to shortsighted economic priorities and policies. The unemployed want gainful employment in jobs that the private sector is unwilling or incapable of producing.

This country needs a manufacturing policy and jobs creation policy. Economic recovery for global corporations and Wall Street financial services does not translate into jobs recovery today. Government employment in large-scale infrastructure replacement projects, while a necessary and useful investment in our future, can only go so far and would not entirely fill the unemployment hole.

We need to establish new national priorities and policies to create jobs so that Americans can go back to work and support themselves and their families with gainful employment. That discussion is occurring only haphazardly. We continue to be mired in repeating the mistakes of the past 30 years based upon the disproved and discredited supply-side "trickle down" economics model.