Boston Fed President, Eric Rosengren in his speech looks at how employment shaped in previous recoveries from recessions.
First a general take:
- As shown in Figure 1, this is not unusual for the first year of a recovery. Consider the following logic. The difference between real GDP and real final sales is the change in inventories. In the first year of the recovery from the four previous recessions, real GDP grew faster than real final sales. This shows how the normalizing of inventories has been an important source of economic growth in the early stages of most recoveries.
- Figure 2 shows that the past two recoveries did not feature job growth in the first year of the recovery, in sharp contrast to the recoveries of the 1970s and 1980s. The past two recessions had positive economic growth in the first year of the recovery, but it was not rapid enough to generate job growth. In contrast, in the recoveries in the 1970s and 1980s, growth was sufficient to yield employment growth in the first year of the recovery.
- Figure 3 illustrates another pattern typical of recoveries. While there has been a longstanding downward trend in the average weekly hours of production workers, it is common for average hours to decline more steeply during a recession. Note that in prolonged recessions, where the shading is the widest, average weekly hours decline more significantly – as workers are placed on shortened work weeks.
- Another harbinger of a recovery in employment is growth in temporary services. Firms often extend work weeks and hire temporary workers before committing to hiring permanent workers. As Figure 4 highlights, the use of temporary workers fell quite dramatically during the recession, but has been rebounding more recently.
Some industry patterns:
- Figure 9 shows four industries that have tended to perform well in the first year of a recovery – professional and business services, education and health services, leisure and hospitality, and to a lesser extent government. The first three are areas that have increased their share of total employment, and all have tended to be less sensitive to economic downturns.
While it is quite possible that these areas will grow in the initial stages of this recovery, that growth is likely to be restrained by various factors. In education and health services, there is the matter of the significant retrenchment in college endowments, and uncertainty as national health reform proposals are debated in Washington.
- Figure 10 highlights industries that have had more mixed results in the first year of a recovery and are uncertain this time as well. While construction employment will be restrained by low housing prices and elevated foreclosures – and commercial construction employment is restrained in many areas by falling commercial real estate prices and high vacancy rates – employment levels in these sectors have experienced such significant declines that we may still see some rebound.
Read the speech for nice graphs and a better understanding of the issues.