Friday, March 9, 2012

About those employment numbers

The big news for the economy is that the BLS announced that payroll employment growth was 227 thousand for February and 284 thousand for January (a revision of 41 thousand above the initial estimate).  This is undoubtedly much better news than we have been hearing, but it still falls far short of what is needed.  More specifically, employment should be growing about twice this rate if we hope to get out of the employment crevasse caused by the Great Recession and the Not-So-Great Recovery any time soon.

The chart below illustrates how far we need to go before we achieve two employment milestones: the pre-recession level of employment and the trend level of employment (i.e., the level of employment that would have occurred except for the recession).  Trend employment is the more relevant milestone because merely recovering the pre-recession number of jobs does not account for the increase in employment that would have occurred through population growth.

In the chart, the red line is actual employment between January 2004 and February 2012; the purple line is trend employment (assuming a growth rate of 134 thousand per month, the average during 2004-2007); and the green line is a projection from current employment if employment grows by 245 per month, the average for the past three months.

As you can see from the chart, we are still pretty far from the pre-recession level of employment.  If employment continues to grow by 245 thousand per month, we would reach this milestone in December 2013.  Note also that, because of the depth of the recession and our mostly tepid recovery, at this rate we are still nine years away from trend employment.  Even if employment growth more than doubles this month's to 450 thousand per month, trend employment will not be reached until April 2015.

By comparison, if job growth had averaged, say, 300 thousand per month since employment bottomed out two years ago (a rate that's about 30 percent below the comparable rate following the 1983 recession), we would be on track to reach the first milestone in May of this year and the second milestone by April 2016.