Always dangerous to say “this time its different” but David Rosenberg has some valid points.
What makes this cycle “different” is the permanency of the job losses – many are not coming back. For example, the number of people unemployed who are not on “temporary layoff” rose 172k in June and the tally is 1.2 million over the past three months to total a record 7.9 million. Three-in-every-four workers who were fired over the past year were let go on a permanent, not a temporary, basis. A record 53% of the unemployed today are workers who were displaced permanently – not just temporarily because of the vagaries of the traditional business cycle. That means that these jobs are not going to be coming back that quickly if at all when the economy does in fact begin to make the transition to the next expansion phase. This, in turn, means that any expansion phase is going to be extremely fragile and susceptible to periodic setbacks.
There may well be job growth in the future in health care, infrastructure, energy technology and the like, but we can say with a reasonable amount of certainty that there are a whole lot of jobs in a whole lot sectors where jobs lost this recession are not going to come back. For example, the 580k jobs lost in financial services, the 320k jobs lost in residential construction, the 1.7 million jobs lost in durable goods manufacturing, the 1.1 million jobs lost in the wholesale/retail sector, and the 380k jobs that were lost in the leisure/hospitality industry. That is over four million jobs right there that were shed this cycle that are not likely to stage a comeback even after the recession is over. To show you how big a number four million is, we didn’t create that many jobs in the prior expansion until it reached its fourth birthday towards the tail end of 2005.
The employment-to-population ratio just fell to a 15-year low of 59.5%. For it to go back to where it was at the peak of the last expansion, when there were legitimate cyclical inflation concerns, the economy would have to generate roughly 10 million jobs from where we are today. So watching for inflation in coming years, and we say this with all deference to the Fed’s bloated balance sheet, which two years into this easing cycle has yet to reignite the credit cycle, is going to be akin to watching grass grow. Have fun.
The degree of slack in the labour market is without precedence, and this widening gap between the demand and supply for labour, as we have seen in Japan, is very likely to continue exerting downward pressure on wage rates. With the fiscal deficit at 13% of GDP and public support for continued deficits waning, it is doubtful that the government, which now contributes a record 18% to personal income, can fill the void indefinitely. Did you know that the White House said in January that an $800 billion fiscal package would be enough to bring the unemployment rate down to 7% and that without the stimulus the rate would be 9%. Here we have the ballyhooed stimulus and the official jobless rate is 9.5%. Maybe, just maybe, the government isn’t the answer and today’s WSJ editorial (Tilting at Windmill Jobs) hits the nail on the head on this issue. Fully nine months after the election, this is hardly W’s recession any longer – even if the pace of economic activity is very likely going to look like a continuum of W’s even after the recession part of this post-bubble credit collapse runs its course.
We shudder to think what the consumer spending landscape would look like if the savings rate was still rising to 15-year highs at a time when incomes were falling faster than they already are. After all, here we are, into the 19th month of recession, and consumer spending in the quarter that just finished looked to have contracted fractionally even in the face of massive help from Uncle Sam. The U-6 unemployment rate, which includes all measures of excess capacity in the jobs market, rose again to a new lifetime high in June to 16.5% from 16.4%. Imagine that 1 in 6 Americans are either unemployed or underemployed, to go along with the 1 in 8 Americans that are either in arrears or already in the foreclosure process and the 1 in 10 homes that are still on the market but not selling. Green shoots, indeed.
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