05 April 2014

Two Reasons Why This Recovery Feels So Anemic (And Why Even Normal Could Create a Boom)

The economy is recovering but we've yet to feel a wave of optimism sweep across the country. The two biggest reasons are that the 2000s gave us a huge hole to dig out from and we're creating jobs at about half the rate we should be given our population.

At first blush, the first few years of this decade have been pretty good in terms of job creation. Assuming that the rate of job creation continues at the average of the first 4.25 years (2010 through March of this year), a graph showing job creation by decade looks like this.

At the rate it is going, the economy would create 19.4 million jobs - exactly what it created in the 1970s and not that much better than the 1980s or worse than the 1990s. That seems really good but I'll explain in bit why it isn't.

In this graph we see the first reason why our recovery seems so anemic. During the 2000s the economy actually destroyed 1.1 million jobs. Such a decade is unprecedented in the post WWII period. A disaster. And think about what it means for a running total. During the 1990s it wasn't just that the economy created nearly 22 million jobs: added to the 1980s, it created a total of 40 million jobs. For an equivalent job market coming off a decade in which no jobs were created, the economy would have to create 40 million jobs during the 2010s, an average of 4 million per year. During the entire period shown in this graph (1940 to 2014), the economy created 4 million jobs only one year (1978).

It gets worse. These numbers of jobs created make no allowance for whether the population is 132 million (as it was in 1940) or 309 million (as it was in 2010). Obviously, though, a larger population needs more jobs. This graph shows the number of jobs created as a percentage of the population.

As a raw number, a rate of job creation that would give us 19 million jobs by decade's end is not bad in comparison to the previous seven decades. But creating new jobs for only 6% of the population is bad. The average for the decades up to 2000 was 9%. To create the equivalent number of jobs would mean creating about 30 million jobs in this decade instead of 20 million.

What would it take to party like it's 1999? To feel as flush with jobs, cash, and wealth? At least a few years of job creation at the rate of 3 to 4 million per year. If we come even close to this, it'll create a boom as impressive as any since WWII even though it will - in some sense - simply get us back to normal.

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