Friday, July 28, 2017

27/7/17: U.S. labor markets are not in rude health, yet

As we keep hearing about the wonders of the U.S. labor markets, there is an uneasy feeling that the analysts extolling the virtues of the Great Non-recovery are bending the facts. Yes, unemployment is down significantly, and, finally, in recent months the participation rate started to climb up, although it remains depressed by historical norms. But these are not the only metrics of jobs creation or employment. Much overlooked are other figures, that paint a much less pleasant picture.

So with this in mind, lets update some of my old charts relating to the side of the labor markets than majority of analysts have forgotten to mention.

First up: average duration of unemployment. In other words, a measure of how long it takes for a person to get back into the job.

Good news is: the decline in duration of unemployment continues.  Better news: we are well past the crisis-period peak. Bad news: duration is at around 2009 levels, so not even at the levels pre-crisis. Worse news: current duration is higher than that recorded at the peak of any other recession in modern history. That's right: with miraculous recovery, we have folks collecting longer unemployment benefits than at the peak of any previous recession.

That was in absolute terms. Now, let's look at how we are performing relative to each pre-recession expansion:
Again, good news: the horror show of the peak during the height of the Great Recession is gone now. But, again, bad news: we are still at the levels of relative duration comparable to 15 months into the Great Recession. And, again, the worst news: after 108 months of 'recovery' we are much worse off in terms of duration performance than in any other post-recessionary recovery since 1948.

But what about employment, you might ask? Aren't U.S. companies generating huge numbers of jobs that are being filled by the American workers? Err... ok...

No. Employment is not performing well. Current cycle (from the start of the Great Recession through today) is long. But it is also extremely shallow when it comes to employment. So shallow, that it marks the worst long cycle in history (per above chart) and, when compared to shorter cycles, ... again, the worst cycle in history. 1953 cycle was bad - sharper jobs destruction than current, but it ended faster and on a higher employment index level than the current one.

So no, things are not fine in the U.S. labor markets. Not by the measures which are harder to game than standard unemployment stats.

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