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Posted by: Joe Weber on July 02
There’s no way to make the loss of 467,000 jobs in a single month grounds for cheer. It’s no wonder that disappointed investors cut the Dow Jones Industrial Average some 2.6% or 223 points, to about 8,280, on the news that national joblessness climbed to 9.5%, up from 9.4% in May. What was worse was that the job loss tally reported by the government was much more severe than the 363,000 economists expected.
But it would be a mistake to assume that this setback means the economy is going into a tailspin again, as it did in the second half of last year. One must look at history to see that, first, job gains don’t happen until recovery is well under way, since employers wait until the last possible minute to staff up. More to the point, as Northern Trust economist Asha G. Bangalore reports, an economic turnaround is never a straightforward affair.
“The path of economic recovery is not a straight line,” Bangalore reports in her Daily Global Commentary for July 2. “[U]ps and downs in hiring are part and parcel of the expected trajectory of employment.”
Indeed, the 1990-91 recession ended in March 1991, but payroll employment didn’t gain ground firmly until 1993, she recounts. Some 1.1 million payroll jobs disappeared in 1991 and the tally rose only 338,000 in 1992. And it took until the fourth quarter of 2003 for hiring to gain momentum after the brief 2001 recession.
Certainly, it’s discouraging that job tallies – which most of us regard as the major barometer of an economy’s health and the key to so much growth, in everything from housing to consumer spending – are among the last things to take off in a recovery. Nonetheless, there are other signs in the jobs report that give one heart.
The latest economic report is reminiscent of the old joke about the sour, nasty guy who dies and no one can be found to speak up for him at his funeral. Finally, someone rises to say, “his brudda was worse.”
In the case of the U.S. economy, the first quarter of this year was indeed worse than the last quarter. On a quarterly average basis, payroll employment fell 1.55 million in the last three month, compared with a far worse 2.07 million in the opening quarter, Bangalore notes. A smaller slide is certainly welcome, if hardly an occasion for champagne.
And Bangalore argues that the more pertinent sign of conditions in the labor market is in the unemployment insurance claims section. Initial jobless claims fell 16,000 to 614,000 in the week ended June 27, while continuing claims – from the week prior – declined 53,000 to 6.7 million. Both areas of claims, she believes, have peaked.
“The conclusion is that labor market conditions remain weak but the pace of job loss has slowed and initial jobless claims, a leading economic indicator, have peaked,” the Northern Trust economist says. “This combination suggests that the labor market is improving in the desired direction.”
Sure, lots more improvement is needed. Getting more people working will be the most convincing evidence that the recession is over, but for now slowing the decline is better than the alternative.
BusinessWeek’s Joe Weber, Patricia O'Connell, Michelle Conlin, Frederik Balfour, Peter Coy, Greg Spielberg and Roger Crockett examine The Case for Optimism by looking past the financial turmoil and economic unrest gripping the globe to focus on the promising future that lies on the other side of this storm. We’ll chronicle the forward thinkers investing in R&D, launching promising new products, entering new markets, or implementing management and leadership.
See why BusinessWeek Editor-In-Chief Stephen J. Adler is optimistic about the economy amid the sharpest downturn since the Great Depression.