A recent Economic Synopses essay shows that the two largest underperforming sectors in the economy—construction and manufacturing—have had very different experiences recovering from the Great Recession compared to recovering from previous recessions.
Carlos Garriga, a research officer and economist at the Federal Reserve Bank of St. Louis, examined the slack in the labor market by comparing the current recovery with previous recoveries at the sector level. He noted, “If individual sectors are recovering at slower rates than in the past, it is reasonable to believe that these sectors are sources of slack. Alternatively, if individual sectors are recovering more quickly than in the past, there may not be much slack in these sectors.”
Garriga examined total hours of nonfarm payroll as reported by the Bureau of Labor Statistics. He focused on the construction and manufacturing sectors due to their underperformance in terms of both payroll employment and hours worked:
Garriga examined overall trends in total hours in both sectors since 1990 and found that the manufacturing sector has experienced a declining secular trend, while the construction sector has had a large positive trend. He also compared the current recovery of each sector with its corresponding overall trend line as well as where total hours would be using the recovery rates from the early 1990s and the early 2000s:
He concluded, “Compared with previous recessions, the manufacturing sector does not show much slack. The construction sector, on the other hand, is below potential. Using the most optimistic scenario for the recovery in construction, total private sector hours are about 0.7 percent below potential.”