Academic journal article ABA Banking Journal

Another "Jobless Recovery"? (Briefing: The Economy)

Academic journal article ABA Banking Journal

Another "Jobless Recovery"? (Briefing: The Economy)

Article excerpt

AS THE ECONOMIC RECOVERY finally hits its stride, attention has shifted to the pace of employment growth this year. So far, GDP growth has come back surprisingly strong, but employment gains have been minuscule. Most economists expect the unemployment rate to hover between 5.5% and 6.0% for the remainder of this year. For those of us who remember the 1990-91 downturn, it may seem like d,j... vu--we have rising tension in the Middle East, a president named Bush, and a recovery with anemic job growth.

The last recession ended in March 1991, but 211,000 jobs were lost over the following 12 months, creating a so-called "jobless recovery." In the early 1990s, the credit crunch in real estate decimated construction jobs, and the restructuring mania at U.S. corporations shrank manufacturing and services payrolls. The unemployment rate kept rising until June 1992, 15 months after the end of the recession.

Are we going to see the same scenario unfold again? Probably not. Nevertheless, there are reasons to believe that employment growth will face strong headwinds. To begin with, the labor market always lags behind the business cycle. It's normal for job creation to remain sluggish as the economic recovery surges ahead. Employers won't start rehiring full-time workers until they are convinced that the rebound is real. In the meantime, employers often make do by having their existing employees work more hours or by relying on temporary help. Indeed, manufacturing overtime hours increased in March, as did employment through temporary placement agencies.

The main reason for slower job growth over the next few quarters is ongoing productivity improvement. …

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