May 07, 2004,
Today’s drop in the U.S. unemployment rate from 5.7 to 5.6 percent, according to the Bureau of Labor Statistics, continues a trend that started in June 2003 when it peaked at 6.3 percent. The current Bush recovery rate is similar to the average unemployment rate in the 10-year expansion between March 1991 and March 2001.
Perpetual bears are forever trying to expropriate the unemployment rate as a leading indicator that forecasts the next recession. When the rate rose in 2002 and early 2003, bears claimed a so-called “double-dip recession” was in order. It was not, and the expansion has continued. Now the rate has fallen for seven out of ten months, with the bears trying to change the debate by claiming that non-farm employment growth is weak. It is not. The U.S. economy has added more than a million new jobs since mid-2003.
The unemployment rate is not a leading indicator, and employment growth is not an illusion. The rate is considered a lagging indicator within the economics profession. In eight out of ten post-recession recoveries since World War II, the rate continued to rise for months after the economy reached its trough. This can be illustrated by looking at when the rate peaked and when past recessions ended:
The rate peaked at 6.1 percent in September 1954, four months after the 1953-54 recession ended (May 1954).
Unemployment peaked at 7.5 percent in July 1958, three months after the 1957-58 recession ended (April 1958).
The rate peaked at 7.1 percent in May 1961, three months after the 1960-61 recession ended (February 1961).
Unemployment peaked at 6.1 percent in August 1971, nine months after the 1969-70 recession ended (November 1970).
The rate peaked in May 1975 at 9.0 percent, two months after the 1973-75 recession ended (March 1975).
Unemployment peaked in December 1982 at 10.8 percent, one month after the 1981-82 recession ended (November 1982).
The rate peaked in June 1992 at 7.8 percent, 15 months after the 1990-91 recession ended (March 1991).
The 2001-03 period was no different. The unemployment rate peaked in June 2003 at 6.3 percent, nineteen months after the recession’s end (November 2001). This rate (6.3 percent) is one of the lowest post-recession peaks of the post-war era. Only two other recessions (1953-54, 1969-70) featured slightly lower rates than June 2003.
In two other post-war recessions the economy reached its cyclical trough coincident to the unemployment rate:
The rate peaked at 7.9 percent in October 1949, coincident to the 1948-49 recession’s end (October 1949). The economy expanded until July 1953.
Unemployment peaked at 7.8 percent in July 1980, coincident to the 1980 recession’s conclusion. The economy expanded until July 1981.
The gloomy evidence bears are seeking existed in 2000 but not today. Many traditional cyclical indicators were suggesting recession by mid-2000. These included an inverted yield curve, a peak in industrial production, and a decline in manufacturing employment dating to 1998.
Today, the evidence is quite different. The yield curve is upward-sloping, industrial production has expanded and is near its pre-recession peak, and today’s Bureau of Labor Statistics report shows manufacturing employment gains for three consecutive months (February, March, and April). Real GDP has expanded in 10 consecutive quarters since the fourth quarter of 2001.
Employment growth has also been impressive. Today’s report shows the economy has created 1.1 million new jobs since non-farm employment reached a trough in August 2003.
Here is one other fact you are not likely to hear today from the bear lair: Total U.S. non-farm employment in April (130,902,000) is now higher than in November 2001 (130,871,000) when the recession ended.
Greg Kaza is executive director of the Arkansas Policy Foundation, a non-profit economic research organization in Little Rock.