Wednesday, November 7, 2012

Meanwhile, back in the Economy----Two Graphs that show why the economy may be in an unemployment funk for an extended period of time. Not sure the political system can fix what you see here...

This graph from Carpe Diem shows 2 things. Real GDP (Blue Line and use the scale on the Left Axis) and Employment, those WITH jobs, (Red Lind and use scale on the Right Axis).

At the tail-end, the Real GDP line shows that Real GDP is now 2.2% HIGHER than it was before the recession. So, while we have not made up for lost time, we are back to a little more than even.

Notice the two lines before the recession (gray area). Real GDP and employment track each other pretty closely.  In AP Macroeconomics one of stock phrases we teach is the direct relationship between the production of goods and services and employment----produce more stuff and you need more people to produce it---businesses hire people.

However, look at what happened post-recession.  Real GDP recovers but at a much quicker rate than employment. The two lines separate rather dramatically. 

Bottomline: Businesses are producing MORE goods and services BUT with approx 3.8 million FEWER workers compared to just before the recession.  This succinctly illustrates what a "jobless recovery" looks like. 

Commentary from Carpe Diem (highlights are mine)--
1. Measured by real output (GDP), the U.S. economy has made a complete recovery from the 2007-2009 recession now that real output in Q3 of this year at $13.6 trillion (2005 dollars) was 2.2% (and $290 billion) higher than the $13.32 trillion of real GDP in Q4 2007 when the recession started (blue line in chart).

2. While real output has completely recovered to 2.2% above its pre-recession levels, the current U.S. employment level of 142.4 million jobs in Q3 is still 3.84 million jobs (and 2.62%) below the 2007 peak of 146.27 million jobs (red line in chart), and that translates into the current “jobless recovery.”

3. The recovery of real output to an historically high level that is 2.2% above pre-recession levels with 2.6% fewer employees has also translated into record-level after-tax corporate profits, which are now 30% above pre-recession levels.

4. The recovery of both output and profits to above 2007 levels with 3.84 million fewer workers could explain the sluggish job growth that will probably continue for several more years. If companies can produce more output now than in 2007 with fewer workers and earn record profits, where’s the incentive to hire more workers?

The Great Recession stimulated huge productivity and efficiency gains as companies shed marginal workers and learned how to do “more with less (fewer workers).” The surge in productivity since the recession started has been significant (see chart below of real GDP per worker) and may have long-lasting effects, e.g. an extended period of time with a jobless rate above 7%. With real GDP, real GDP per worker, and corporate profits at all-time highs, we can expect sluggish job growth to continue, but it’s unlikely that we’re on the front edge of a recession right now.

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