November 21, 2011
Comparing non-farm payroll statistics of the 2008-2009 recession against earlier recessions, Waller illustrates why 2008-2009 was called the "Great Recession." He also shows how recessions in the U.S. between 1948 and the 1980s tended to show a sharp rise in unemployment that peaked right at the very end before falling sharply. However, this has not been the trend in recent recessions, including the Great Recession.
Christopher Waller: So we're going to talk about unemployment tonight. And the first thing I want to say is I've stolen most of the important material from our annual report that David actually helped write, along with Marcela Williams from our Public Affairs department, so I'm kind of liberally pulling some of this stuff together with some new stuff. I think we sent out an email with a link to this report. It's a very nice thing. David actually went back and reread it and told me tonight, "God, that was really good." So if you want a more written formal thing rather than just my talk, feel free to go read it.
So here's where we are. Labor markets have been ravaged by the worst U.S. economic crisis since the Great Depression. Over the course of about a 25-month period, approximately 9 million Americans in the labor force lost their jobs. That's about 353,000 jobs each month of that two-year period. Now the unemployment rate doubled from January 2008 to October 2009. It went from five percent to more than 10 percent. We'd only seen 10 percent one time since the 1930s. That was in 1981 and 1982. And since October of 2009, the unemployment rate has just barely come down. Okay? And so that's the big concern for those of us in the policy arena.
Now what I want to do is give you some sense of this recession by looking at the last two to give a benchmark. So if you go back, this is U.S. private payroll employment monthly changes. I tend to like to look at private employment to see what the private sector is doing, as opposed to what the government is doing in terms of hiring and whatnot. And if you look at the '90-'92 recession, which by the way cost a U.S. president his job—as James Carville once said, "It's the economy, stupid," and this is the recession he was referring to—there's one month where we lost 300,000 jobs in that entire recession. Okay?
So let's go to 2001-2003, a little worse. We see that the largest monthly loss was about 325,000-50,000 and we had it about three times. Okay? And the other thing is, if you look at—let me just back up—when we come out of these recessions, the unemployment picture is mixed. Goes up, goes down, goes up, goes down. So it's very uneven coming out of it. And the same is true in 2001-2003. We came out of it. There's some recovery. Down, back up. Here's the last one. 750,000 jobs for six straight months. That is why it's called the Great Recession. Okay?
These numbers are staggering. Now that means you dug yourself a very big unemployment hole with this last recession. Now the one bright spot is that, if you notice in the recovery, for almost two years the numbers are all positive. But they're not that big. And that's where the issue is. We're having private payroll employment growth, but it's just not enough to overcome the hole that we're trying to come out of. And that's where everybody is kind of struggling, frustrated, trying to think of policies and what can be done to improve the labor market in the U.S.
Now this is just a slightly different picture of the same thing. You can see that, over time, employment rises. And then there's the recession '90-'91. Here it was in 2001. And then, bang, it goes off a cliff in this one. So just, again, the sheer scale of these declines is amazing in the time period. All right? Now let me just talk about the unemployment rate in general. So we have data on the unemployment rate going back to 1948. And all of these gray bars are recessions in the U.S. Okay?
And if you look prior to '90, '91, '92, recessions had the following property with unemployment: very sharp rises and very sharp declines in almost all of them, even in '81-'82, which unemployment was almost 10 1/2 percent. But what we see—and the other thing is, unemployment almost always peaks right at the end of the recession. What we've seen in the last three recessions is that unemployment peaks after the recession ends, and instead of spiking down quickly, it just kind of slowly comes down, and this recession is the same.
So this is the thing that's got economists kind of trying to figure out what happened since the late '80s that when we have these recessions, unemployment peaks later and comes down very slowly, compared to, you know, many recessions—six, seven of them prior to that. So that's one of the struggles we've had trying to understand the U.S. labor market in the last 25 years.
Now how has the St. Louis Fed district done relative to the nation? Well, our District is pretty much a microcosm of the nation as a whole, but for the most part, we did a little bit better in the last couple of years. Our unemployment rate is the red dotted line. It's slightly lower than the national average, but not much better. Okay? So we kind of track as a district very closely with the nation as a whole.