While job market anxieties are at the heart of today’s most prominent concerns, many may be surprised that the contemporary recovery has produced better job results thus far than was achieved in either the 1991 or 2001 recoveries. In 1991, persistent private job gains did not begin until one year after the recession ended and it took 21 months before constant private job creation occurred after the 2001 recession. Assuming the 2009 recession ended last June, persistent job creation began at year-end, only six months after the recession ended! Moreover, private job losses continued for at least a full year after the 1991 and 2001 recessions whereas this recovery has produced 510 thousand private sector jobs in the last six months!
The speed of the contemporary recovery is slower compared to U.S. recoveries of 30 to 40 years ago. Mostly this is because back then, the U.S. had much stronger labor force growth (boosted by baby boomer demographics and women entering the labor force) adding to recovery growth rates. In the 1970s, the U.S. labor force annualized growth rate was 2.7 percent. In the last 10 years, by contrast, the annualized labor force growth rate has only been 0.7 percent. Interestingly, if the U.S. had the same resource undertow that it did in the 1970s, the current recovery might be growing 2 percent faster, and a 5.4 percent first year growth would not necessarily be considered a sub-par recovery. Indeed, adding the 2 percent “labor force adjustment” to recoveries since 1990 would make the 1991 and 2001 recoveries very comparable to the 1970 and 1980 recoveries and would make the contemporary recovery appear far more similar to the robust 1975 and 1982 recoveries.
Is the current recovery truly a “new” new-normal? Or, has “new-normal slower resource growth” been in play already for more than 25 years? The last three recoveries have been slower, but not necessarily because of debt or other more challenging structural problems as many would suggest. Rather, they have been weaker recoveries simply because the U.S. no longer possesses rapid resource growth as it did in earlier decades. Since the mid-1980s, the annual rate of real GDP growth has seldom been above 4 percent. For example, between 1960 and 1985, annual real GDP growth was above 4 percent 51 percent of the time. Whereas, since 1985, it has only exceeded 4 percent 28 percent of the time.
The “new-normal” economic world which so many think we are headed toward may be a better description of where we have been for the last 30 years! In this light, achieving a 3.4 percent real GDP growth rate in the first year of this recovery with virtually no labor force growth may be a very successful result. Indeed, the 3.4 percent growth rate in the last year is better than more than 60 percent of the time since 1985.
Even if the contemporary period is a “new-normal” recovery, it is thus far proving stronger than the “oldnormal”—that is, compared to the last two recoveries or the average economic performance since 1985! Our belief is this recovery appears quite “normal.” It is not as strong as recoveries were in the 1960s and 1970s (nor should it be because U.S. resource growth rates are not nearly as strong) but nor is it as weak as recoveries have been in the last 30 years. It is a recovery which thus far is ahead of the “normal” (at least the normal for the last 30-year era of slower U.S. resource growth) primarily because it is coming from a deeper recession. Consequently, is the contemporary recovery really a chronic disappointment which is vulnerable to a double-dip recession? Or, is the current recovery (soft patch notwithstanding) actually much stronger than widely perceived?
Exhibit 2
