Academic journal article Monthly Labor Review

A Visual Essay: Post-Recession Trends in Nonfarm Employment and Related Economic Indicators

Academic journal article Monthly Labor Review

A Visual Essay: Post-Recession Trends in Nonfarm Employment and Related Economic Indicators

Article excerpt

The economy entered a recovery in November 2001 following an 8-month recession, but the labormarket recovery began much later. Gross domestic product (GDP) and corporate profits had surged before payroll employment reached its August 2003 trough. Employment edged up by about 60,000 a month during the remainder of the year. Gains averaged about 225,000 a month during the first 5 months of 2004 before slowing in the summer. The post-recession disconnect between overall economic growth and the labor market was unusual. The following analysis reviews this apparent inconsistency, and also identifies a number of other broad labor-market indicators that paralleled the lagged recovery in payroll employment. Employment data used in this essay are from the Current Employment Statistics (CES) survey, a monthly survey of about 160,000 businesses and government agencies, which represent approximately 400,000 individual worksites. For more information on the CES, see BLS Handbook of Methods, chapter 2, on the Internet at http://www.bls.gov/ces

Real GDP

During and following the recessions of the early 1980s, the employment trend generally coincided with the trend in real GDP. In contrast, sustained employment growth lagged GDP growth by four quarters after the 1990-91 recession and by eight quarters after the 2001 recession. Overall, the downturn in employment associated with the 2001 recession was more prolonged than those associated with the recessions of the 1980s and 1990-91. (The National Bureau of Economic Research, the official arbiter of recessions, has designated these periods as recessions: January-July 1980, July 1981 -November 1982, July 1990-March 1991, and March-November 2001.)

The 1990-91 and 2001 recessions were milder in terms of contracting GDP than those of the early 1980s. During the 1981-82 recession, employment contracted by 3 percent, compared with a mild 1 percent during the other three recessions since 1979.

1. Percent change in real gross domestic product and quarterly change in total nonfarm employment, seasonally adjusted

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Corporate profits

Historically, private employment and real corporate profits behave similarly at the end of a recession. Both reach a trough as the recession ends and then recover quickly. At the end of the 1990-91 recession, both profits and employment continued to move in parallel, but were lagged in their recovery. The parallels broke down with the 2001 recession.

Leading into the 2001 recession, growth of corporate profits stalled and then exhibited a relatively sharp and deep decline. Employment declined as well during the recession, but not as drastically as corporate profits. Since reaching a trough in the third quarter of 2001, corporate profits have increased by 56 percent. Employment, on the other hand, remained essentially unchanged until late 2003. Rising productivity explains, at least in part, the divergence in profits and employment.

2. After-tax profits in constant (2000) dollars and quarterly averages of total private employment, seasonally adjusted

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Corporate profits declined substantially from the first to fourth quarter of 2001 and then recovered quickly. A large part of this swing is tied to the financial situation of three industry groups: information technology (IT)-related manufacturing, information industries, and transportation. (IT-related manufacturers produce information technology products. They are classified in computers and electronic products manufacturing [NAICS 334].) IT-related manufacturing and information industries felt the impact of the bursting technology bubble, whereas transportation was affected in part by the aftermath of the September 11th terrorist attacks. Corporate profits excluding those industries were much less volatile and much more in keeping with prior recessions.

3. Total domestic pre-tax profits and total excluding computer and electronic products, information, and transportation and warehousing

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The difficult financial situation in computer and electronic products, information, and transportation and warehousing resulted in cost-cutting initiatives that included numerous layoffs. …

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