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YOU DECIDE: Are both recessions over?

October 02, 2009

MEDIA CONTACT: Dr. Mike Walden, 919.515.4671 or michael_walden@ncsu.edu


Dr. Mike Walden
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Federal Reserve Chairman Ben Bernanke recently created headlines when he stated that, technically speaking, the recession may very well be over. However, the 268,000 workers who have lost their jobs in North Carolina since the recession began may have another opinion.

So is Chairman Bernanke out of touch with what's happening to workers and families? Unlikely. The Federal Reserve probably collects more information about the economy than any other institution in the country, and Bernanke is fully aware of these statistics.

Instead, Bernanke's comments point to the fact there are really two recessions, a production recession and a jobs recession. Production refers to the amount of output our nation's factories, farms and offices are making. Of course, jobs mean the amount of employment available. I interpreted Bernanke's statement to imply the production part of the recession shows signs of improving.

And he's right. The broadest measure of production in the economy, called gross domestic product by economists, or GDP for short, fell in the spring of this year by 1 percent. However, that was far better than the 6 percent drop last winter, and economists almost universally think GDP is now growing.

There's more good news on the production front. Factory output has now risen for two straight months, both nationwide and also here in the Southeast. And in the all-important housing sector, more new homes are being built than last spring. But, I should caution, these gains are being made from a very low base. For example, factory output today is still 15 percent under its level two years ago, and new home construction is off 75 percent from its peak during the real estate boom.

Nevertheless, the bottom line is that profitability is beginning to return to businesses, and this is making businesses want to produce more. This is also the reason the stock market has risen, on trend, since March. Greater profitability for businesses means higher earnings, and companies with higher earnings will have higher priced stocks.

But the other side of the recession is the job picture, and production and jobs - at least now - don't necessarily go together. While there are signs economic production is rising, jobs have still not come back. In fact, in the latest employment report for North Carolina - for August - the broadest survey of the jobs picture in North Carolina showed the state losing over 8,000 jobs in that month.

But even here a case for improvement can be made. Job losses have been slowing. In the last six months, North Carolina has averaged monthly job cuts of near 10,000. In the previous six months, the average was 25,000 job losses per month. Similar optimism can be taken from the weekly initial unemployment claims. These data show the number of new people signing up for unemployment compensation. New claims have been moving lower in North Carolina for six months.

The pattern that seems to be unfolding is one we've seen before. The production recession ends before the jobs recession ends. For example, in the 2001 recession, production in the economy began rising at the end of the year, but jobs didn't start coming back until late 2003.

Most economists think this pattern will also hold true today; that is, jobs will come back with a lag after the production economy turns around. But there is some good news. Unlike the last recession, when it was more than a year before jobs came back, economists think the lag will be between six and nine months this time. This is because businesses have cut jobs so much during this devastating recession, that they'll be hard pressed to sustain production increases without adding workers.

So Chairman Bernanke didn't have his head in the sand when he said the recession was technically over. If we use production and profitability as a guide, he's probably right. The problem is that most people don't look at the economy that way. They look at one simple indicator - jobs. And the job market isn't back yet, and likely won't be for a while.

The jobs will come - eventually. You decide if this is enough!

-end-

Dr. Mike Walden is a William Neal Reynolds Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of N.C. State University's College of Agriculture and Life Sciences. He teaches and writes on personal finance, economic outlook and public policy. The Department of Communication Services provides his You Decide column every two weeks. Earlier You Decide columns are at http://www.cals.ncsu.edu/agcomm/writing/walden/decide.htm

Related audio files are at http://www.ncsu.edu/waldenradio/

Posted by Dave at October 2, 2009 08:00 AM