Summary
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The U.S. recession continues to batter the labour market, although the monthly decline in employment has been hovering at about 0.5%.
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These statistics, however, hide an important facet of the labour market. Even in times of recession, the gross job creation rate remains high. What’s more, history teaches us that the gross job destruction rate can fall and the gross creation rate can rise even in the thick of an economic downturn.
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Many forecasters swear by initial U.I. claims to predict when monthly job losses will diminish in the United States. However, this indicator reflects only one side of the coin.
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After 16 months of recession in the United States, 3.7% of all workers have lost their employment. This means that more than 96% are still working. Moreover, the traditional mechanism that leads to economic recovery seems more than ever to be operative. The purchasing power of workers is growing at a high speed, especially when we add in the effects of lower interest rates and cheaper mortgage refinancings.
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Time is no longer a foe, as the gross job destruction rate is expected to begin ebbing in certain sectors. Moreover, the liquidity injected by the Federal Reserve and the infrastructure stimulus plans of the Obama Administration should boost the gross job creation rate in short order. Together, this will have a double-barrelled effect on the monthly labour market report.
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All in all, the average historical delay of 5 to 6 months before returning to positive net employment growth after monthly declines of 0.5% does not seem far-fetched, even for a recession as severe as the current one.
