Not So Jobless Recovery

06/01/2012 at 7:14 pm 2 comments

One of the major themes of American politics in recent years has been the “jobless recovery”. In a nutshell, while real US GDP was reckoned to have recovered its 2007 peak during the third quarter of last year, the unemployment rate – which ended ’07 at 4.8% – stood at 9.1% in September. This represented a reduction of a mere 1% since the jobless rate peaked a full two years previously. It also represented a headache for the President and a gift for his opponents in the runup to an election year.

It has been easy to miss amid the misery of the European crisis, but this all changed over the last three months.

Unemployment is a textbook example of a “lagging indicator”: one which takes time to catch up with economic activity in both falling and rising environments for GDP. To expect the labour market to recover its pre-recessionary state of health after only a year or two was always unrealistic. Nonetheless, it was worrying that for the middle two quarters of last year, the rate of job creation slowed and the unemployment rate seemed stuck on an unpleasantly high plateau.

The number of those claiming unemployment insurance, a measure which had declined significantly into the beginning of 2011, also stalled over this period. And then, from the middle of October, it suddenly started to fall.

As we now know, this presaged strong payroll gains and a fall in the unemployment rate to 8.5% – not the stuff that dreams are made of exactly, but progress.

This progress has already had an impact on confidence. It will also assist recovery in the real estate market, and by extension the mortgage market and the banking system.

If last year taught us anything it is that we should be wary of getting ahead of ourselves in the current climate. But it is undeniably comforting that Uncle Sam is entering 2012 with a little more of a spring in his step.


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