Labor market takes the bruise

"Nonfarm payroll employment fell sharply (-533,000) in November, and the unemployment rate rose from 6.5 to 6.7 percent... . November's drop in payroll employment followed declines of 403,000 in September and320,000 in October, as revised. Job losses were large and widespread across the major industry sectors in November."

This is unusually blunt language from a statistical agency like BLS and these developments indicate how much short-term impact the financial meltdown and credit freeze are having on the production economy. And for an economy already 12 months into a recession, these are very tough impacts.

There have been 10 recessions since the end of the Second World War—a conventional dividing line between old and modern economic structures and policy regimes. They can be roughly sorted into short, average, and long durations. Four were short—6 to 8 months in duration; Four were average—10 or 11 months; and two were long—16 months each.

As I wrote earlier, the short and medium ships have sailed, so we should look at the prospect of something quite like the longer recessions of recent times. In those long recessions the unemployment rate rose by an average of 3.7 percentage points. Thus far in this recession, the jobless rate has gone up 1.7 percentage points, as the Bureau of Labor Statistics stated in their release.

On the payroll employment side, the two longer recessions of the modern era (1973-75 and 1981-82) generated job losses amounting to 2.4 percent of employment at the official turning point. As of November, the economy had shed a net of 1.9 million jobs, approximately 1.4 percent of the stock of filled positions in December 2007.

Given these figures, a statistical determinist would suggest that the current recession has 4-6 months left to run, will result in about 1.3 million additional job losses, and about 2 additional percentage points of unemployment.

While statistical determinists are notorious for their optimism, I would like to inoculate readers about some foreseeable pessimism; Next May, with the economy still sluggish, reports of various types will begin to bloviate about “the longest recession since the Great Depression.” At least through next year, that would have to be taken as a deliberate attempt to sensationalize. The downturn that created the depression of the 1930s lasted 43 months—let’s at least wait until any current episode is more than half that lengthy before we start using such comparisons. (With any determination, luck, and policy skill we won’t have to use that line at all.)