US recession and US/UK average hours worked - wonk wonk

To continue on from the previous post about the UK economy, I thought I would see if the US economy was doing any better. Short non-wonky answer: no.

The official US unemployment rate rose last period to 9.5%. This is the highest official employment rate since 1983. You think that is bad? This ignores both underemployed people (ie people employed part time who want to work full time) and job seekers who have become so discouraged that they have given up looking for work. So exactly how deep and long is this recession? Calculated Risk have produced the following easy to read graph which I have copied to illustrate my next two points.















Depth of employment recession

The current US employment recession (red line) is the second deepest since WW2 in terms of recession from prior peak employment, with employment around 4.7% less than December 2007.

The only recession which went deeper was 1948 (navy blue line), and that recession rebounded back to prior peak employment in 22 months, so four months on from this point in time. I don’t know enough post WW2 US economic history to comment as to why the 1948 recession rebounded so quickly, but some kind of post war stimulus seems to be the answer here – maybe the Korean War and the start of the Cold War arms race.

If you look at the trajectory of the red line, there is no way this current recession is going to return to prior peak employment in the next four months, instead it will probably overtake the 1948 recession to become the deepest post WW2 recession.

Length of employment recession

The second thing which strikes me about this graph is the length of time which recent recessions have taken to return to prior peak employment. The 1990 recession (black line) took 30 months to return to prior peak employment, and the 2001 recession (brown line, popping of dot com bubble) took 46 months or just under four years to return to prior peak employment.

Economists describe this lag as a jobless recovery. The recovery is driven by productivity improvement or technological advancement rather than increases in number employed, which is basically the worst possible outcome for anyone remaining unemployed. GDP recovers and becomes positive again, so prices & rents begin to increase again, but the employment market still lags behind its prior peak employment.

Again, if you look at the trajectory of the red line, this current employment recession shows no signs of bottoming out any time soon, let alone returning to December 2007 levels. This current recession could outlast the 2001 in terms of length to become the longest post WW2 recession, but at this stage (18 months on from prior peak employment)

So how do you pick when an economy has bottomed out, and unemployment is about to abate?
One potential indicator is average hours worked. If companies want to increase their output at te end of a recession, their first response won't be to hire new staff in case the recession keeps going. Rather, the company will increase the hours worked by their existing staff.
So what is happening with US/UK average hours worked? Well, both the UK and UK governmental statistics bureaux have nice data mining interfaces, and the respective graphs for average hours worked over the period 1999 to date are as follows:



The US average hours worked isn't moving upward at all, so no pleasure here.





The UK average hours worked has curved up slightly, but it is only a movement from 36.6 hours in the three months finishing March 09 to 36.9 hours in the three months finishing May 09. I would call this statistical noise.



End of wonk.