The job loss torrent slows (we think)

Justin,
Would you like to comment on the overall symmetry of the loss of employment patterns – the sharp losses in ’74, ’80 and ’81 were followed by sharp gains, in contrast to the more gradual changes in ’91 and ’01? Does this say anything about the recovery from the current sharp recession when it finally arrives?

@pneogy
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That’s a bit of the ‘alphabet soup’ discussion they’re having on the current recession. Different recessions have different recovery cycles – you’ve identified the “V” (shop drop followed by sharp recovery) and “U” (Sharp drop followed by gradual recovery) patterns of stabilization.
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These aren’t just differences in the rate job creation – they’re fundamental differences in the mechanics of individual recessions. Some recessions are driven by a lack of consumer confidence, or global mechanism, and when that pressure relaxes the economy snaps back fairly quickly. Others (like this one) can result from pretty massive global imbalances, and it can take time for those problems to burn themselves off.
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A bigger concern is that the massive uncertainty we face could lead to further sharp falls after a period of recovery (a ‘W’) or, more worringly, a long, flat period of minimal growth, as the global economy adjusts away from a trade model that was impossible to support, long term ‘L’.
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And before, Maureen Dowd-style, I get thrown to the wolves of plagiarism, I should say that pretty everything I just said was taken from a recent blog at the Atlantic. Probably word for word at times. Forgive me, o vengeful Gods of Intellectual Copywright!

“Others (like this one) can result from pretty massive global imbalances, and it can take time for those problems to burn themselves off.”
In my opinion, the main reasons why this recession will take time are that it combines the enormous fall out from the mortgage debacle with imbalance our economy has taken on by placing so many jobs in the hands of residential and commercial building as well as lending. This is a structural problem that will probably take much longer to correct than most people expect.

For example, building may be one of the last areas of the economy to rebound. Moreover, Congress has been dancing around the final needed measure which would be to allow bankruptcy judges to write down the principal amount owed on homes. Until this happens, there simply will be way too many people upside down on the mortgages in many parts of the country. And, potential buyers will continue to sit on the sidelines, knowing that houses in their area are still over priced. Plain and simple, this was mostly a housing / lending recession, so there has to be strict lending measures enacted that raise the bar for originating mortgages. Unfortunately, taking these needed steps may prolong the recession.

@jjworleyeoe – more than that. We need to repair public and private balance sheets, reduce the reliance of world trade on American consumer demand, close the trade gap with China, and stimulate a global demand based on something other than cheap credit and overleverage. That’s a process that could take years.
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But look on the bright side. Our housing market sucks, but we’ll eventually produce enough babies/immigrants to wind our way out of the mess. We could be Spain, with a falling, aging population and huge housing overhang. They’re statistically in a position where their housing prices might NEVER recover.

Let’s not forget the tens of $ billions of ARMs set to recast starting next Spring and unless the employment situation gets a lot better by then, these higher rates will be hitting quite a few people who will be unemployed and broke. It won’t be pretty and could prolong the recession well into 2012, or longer.

@strawmn: Thanks. I was actually trying to figure out if the economy responds in somewhat different ways to output gaps of different magnitudes.

@strawmn

Of course, there are more structural issues at work here, which you nicely summarize. Unfortunately, Obama is about to be side tracked with healthcare reform that, while important, will not correct the structural employment / production / consumption problems you mention. If anything, it’s only going to exacerbate the problem. The main way to reduce healthcare costs is to eliminate administrative overhead and have nursers and doctors be more productive, which will mean fewer jobs in one of the few recession proof fields.

@pneogy – Krugman had a bitty about output gaps in his blog. His rough conclusion was that every percentage of GDP lost to the output gap correlated to about .5% deflation. But the graph was seriously lacking in data, and it’s tough to tell, as you suggest, what a deeper study would show. Would that relationship prove exponential, accelarating as the output gap deepened, or would maintain that .5 ratio? It’s beyond my ken.
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And Krugman is pretty seriously married to deflationary concern. Like, Inquisition-style serious.
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@jjworleyee –
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Ha! If I’d answers to the health-care issue, I’d be in a different field entirely. Certainly, any solution will involve administrative reform, but then, we could extend health care to every member of the population tomorrow if we chose to ration care. That’s not going to happen.
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I think you could argue that bank reform and health care reform aren’t exclusive – but I capital-letter-AGREE with you that there’s. We’re getting on through the first year of this crisis, and still no expanded capital requirements for banks, still no reduction in leverage rates, still no division between commercial and investment banking and still no clearinghouse for derivates. There’s an increasing chance that we’re going to be left with the same financial sector that got us into this mess.

Found ECRI Weekly Leading Index with charts and data here: http://www.businesscycle.com/resources/

Reuters story here: http://www.reuters.com/article/economicNews/idUSNYS00512420090605

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