31 August 2015

Why the Longest Run of Job Creation in History Still Gets no Respect

Updated to reflect actual August job numbers and revised argument.

Today’s job report makes 59 uninterrupted months of job creation. Judging from the talk of pundits, politicians and your friends on Facebook, though, you might think that we’re still in a recession.

Here are the numbers for the four longest, uninterrupted periods of job creation since record keeping began in the 1930s.
Months of Uninterrupted Job Gains
Number of Jobs Gained (Millions)
Average Number of Jobs Gained per Month
Late 1990s
Late 1980s
Current (still going)

This streak is already 11 months longer than the old record, set in the late 1980s. It has also created more jobs than any other and it is not done yet.

Capital markets, too, have done well. During the 8 years that Clinton was in office, annual market returns averaged 15.2%, as measured by the S&P 500. In the roughly 6.5 years that Obama has been in office – even with the turmoil through 3 September – the annual returns on stocks has been 14.2%.

So why has the media and even the public been so blasé about this recovery?

There are three possible reasons. One, the aughts left a huge hole to fill. Two, wages have been mostly stagnant throughout this recovery. Three, during this entire recovery there is rarely a quarter that goes by without some alarming event. Even while the economy has been improving, people have been aware of how it could de-rail.

In the last two decades of the 20th century (the 1980s and 1990s), the American economy created 40 million jobs. In the 2000s (the aughts from 2000 through 2009), the economy actually lost 1 million jobs. This means that in order to create as many jobs in the first two decades of this century as it did in the last, the economy would have to create 41 million jobs between 2010 and 2019. The most it has created in any previous decade is 21.9 million. The fact that the economy is on track to create more than 22 million jobs this decade should be impressive: instead, it is about half of what it would take to offset the lost decade of the aughts.

Another reason that people remain unimpressed with this recovery is anemic wage growth. Household wages aren’t much higher than they were 20 years ago. The reasons for this are complicated but ultimately show up in a simple relationship. The price of labor – like any good – goes up when demand is strong and down when demand is weak. From 1993 to 1999, the economy created 21.2 million jobs; demand for labor was high and wages rose 15%. From 1999 to 2004, the economy lost 192,000 jobs; demand for labor was weak and wages fell 4%.

During the first half of this decade, the economy created 12.4 million jobs, which should have been enough to bring wages up. The trouble is, only recently has unemployment approached 5% and only recently have wages begun to rise much.

Finally, we tend to miss the facts of this extraordinary recovery because we have never been so attuned to threats from around the globe. During the last six years, a partial list of the things that have shaken confidence include stalled budget negotiations in DC, Arab Spring, Russia’s invasion of the Ukraine, the threat of Greece’s exit from the Eurozone, youth unemployment throughout southern Europe approaching 50%, China’s slowdown, widespread hacking of private companies and public agencies and votes on separating Scotland from the UK and the UK from Europe. A rare quarter passes without some real threat to economic stability.

Nor are the threats clear. When oil prices fall, we feel good. When the oil industry begins laying off, we feel concerned. When China’s economy is booming, we feel threatened by the competition. When China’s economy slows, we feel threatened by the drop in global demand. The extent of our sensitivity to global events has never been so obvious or so confusing.

Meanwhile, the American economy’s streak of job creation continues to set a new record each month. It’s obvious that we – indeed, the whole world – still have problems to address. Even so, it seems overdue to celebrate the fact that this recovery is not just – by some measures - the most impressive in history but is still far from over.

No comments: