about 20 months the U.S. economy has been
operating in a twilight zone: growing too
fast to meet the classic definition of a recession,
but too slowly to meet the usual criteria
for economic recovery. There's nothing particularly
mysterious about our situation. But recent
news coverage and commentary - in particular,
the enthusiastic headlines that followed a
modest increase in growth and a modest decline
in jobless claims - suggest that some people
still don't get it. So here's a brief refresher
course on twilight zone Economics 101.
November 2001 - which the National Bureau
of Economic Research, in a controversial decision,
has declared the end of the recession - the
U.S. economy has grown at an annual rate of
about 2.6 percent. That may not sound so bad,
but when it comes to jobs there has been no
recovery at all. Nonfarm payrolls have fallen
by, on average, 50,000 per month since the
"recovery" began, accounting for 1 million
of the 2.7 million jobs lost since March 2001.
employment is chasing a moving target because
the working-age population continues to grow.
Just to keep up with population growth, the
U.S. needs to add about 110,000 jobs per month.
When it falls short of that, jobs become steadily
harder to find. At this point conditions in
the labor market are probably the worst they
have been for almost 20 years. (The measured
unemployment rate isn't all that high, but
that's largely because many people have given
up looking for work.)
this leads to a great deal of suffering -
not just lost income, but also the anxiety
and humiliation that come with long-term unemployment.
Is relief in sight?
the last few weeks two numbers have led to
a spate of optimistic pronouncements. One
is the preliminary estimate of second-quarter
growth, which came in at a 2.4 percent annual
rate - about one point higher than expected.
The other is the rate of new applications
for unemployment insurance, which has fallen
slightly below 400,000 per week.
while the growth and new claims numbers were
good news, they didn't tell us that the economy
is improving. All they said is that things
are getting worse more slowly.
should be obvious when it comes to growth.
I saw headlines saying that in the second
quarter growth "soared," even "rocketed."
Huh? That 2.4 percent growth rate was a bit
less than the average during our job-loss
recovery. Just to stabilize the labor market
in its present dismal state would probably
take growth of at least 3.5 percent; it would
take much more than that to return the economy
to anything resembling full employment.
about those unemployment claims: somehow that
400,000-per-week benchmark has acquired a
lot more significance in people's minds than
it deserves. For example, claims came in at
398,000 yesterday - and this was treated as
good news because it was (barely) below the
here's some perspective: since November 2001
new claims have averaged 414,000 per week.
A number a bit lower than that might mean
stable or slightly rising payroll employment
- but as we've just seen, that's not nearly
good enough. For comparison, in 2000 - a year
of good but not great employment growth -
weekly claims averaged 305,000. My conclusion
is that the state of the unemployed won't
improve unless claims fall a lot further than
is a real, unambiguous recovery just around
the corner? Recent economic reports have had
a "good news"-"bad news" feel to them. Businesses
are starting to buy some equipment; that's
good. But they seem to be engaging in replacement
investment, not capacity expansion; that's
bad. Consumers are spending; that's good.
But rising interest rates seem to have ended
the refinancing boom that put cash in consumers'
pockets; that's bad. And so on.
best guess is that growth in the second half
of the year will be faster than in the first
half, possibly high enough to create some
jobs, but not high enough to make jobs easier
to find. In other words, in terms of what
matters most, the economy will continue to
this is, of course, an indictment of our economic
policy - a policy that has managed the remarkable
trick of generating immense budget deficits
without giving the economy much stimulus.
But that's a subject for another day.
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