EconSouth (Third Quarter 2003)
EconSouth (Third Quarter 2003)
A Job Loss Recovery
he period immediately leading out of the end of a recession is often called the recovery phase a time during which economic conditions improve and the economy begins to grow again. The economic recovery that began toward the end of 2001 appears to have taken much longer to gain traction than is typically the case.
This economic sluggishness is particularly evident in labor markets. Over the past year and a half, even as the value of the nations output was expanding, many businesses were still cutting payrolls. While some analysts described the economic recovery following the 199091 recession as a jobless recovery because net employment increased only slowly, the past year and a half has been described by many as a job loss recovery.
Employers hesitate this time around
The net change in employment from one period to the next is the difference between the number of jobs created over that period and the number of jobs lost. Jobs are created either by firms expanding payrolls or by new businesses hiring workers. Jobs are destroyed by firms that lay off some staff or shut down operations completely. A recession is typically characterized by a surge in the rate at which jobs are destroyed as businesses struggle to survive in the face of weakening demand and falling profits. In the 2001 recession the rate of job destruction was greater than during the 199091 recession.
In a recovery period, as demand and profit conditions improve, a marked increase in the job creation rate usually occurs. More jobs become available as existing firms hire workers, possibly some that had been previously laid off, and the number of new business start-ups increases. Job creation picked up modestly after the 199091 recession, and a little over a year later the economy was adding jobs on a year-over-year basis. That creation process is later in coming this time, however.
Even though the rate of job destruction slowed in 2002, many businesses, especially those in hard-hit sectors such as manufacturing, travel and telecommunications, have been hesitant to add to their payrolls again. Current Bureau of Labor Statistics data indicate that employment continued to decline in the nation a year after the end of the 2001 recession, and this trend continued through the first half of 2003.
Signs of improvement?
Some indicators suggest that labor market conditions will improve over the coming months. A pickup in factory orders and shipments during the summer points toward some renewed activity in the nations beleaguered factory sector. Whats more, consumer spending appears to have ticked higher as well. While it is too early to declare victory, and even though job losses still lead the news on the employment front, job destruction appears to have become more concentrated in certain industries, with more and more industries adding to the list of those creating net employment growth.
By John C. Robertson, assistant vice president of the regional research group of the Federal Reserve Bank of Atlanta