The US Recession: Is It Over?

Introduction

In earlier postings, I have argued that Asia and Latin America have emerged from the global recession. I have also said earlier that the US, Europe, and Japan remain mired in the recession and mountains of debt.  But there have recently been glimmerings in the US that things are starting to get better. I take a look at the data below.

The US Economy

The US Treasury monthly 2-page summary provides a nice listing of economic indicators on the US economy. Things certainly appear to be getting better, including auto sales, industrial production, business activity, and leading indicators.

From the outset, I have said watch the employment numbers. When people get a job, they earn income and are more likely to spend more than when they are unemployed. What do we see there? Table 1 provides quarterly data on net job changes since 2006.

Table 1. – Net Employment Changes, 2006 – 2010

(in thousands)

Source: US Bureau of Labor Statistics

Clearly, 2008 and 2009 were tough – 8.5 million jobs lost. But so far in 2010, things appear to be improving. Part of this improvement stems from the government stimulus package. One hopes that the government stimulus will create enough forward momentum so that shortly the economy will move forward on its own and the government can start reducing its unsustainable deficit.

What do we know about the employment effects of the government stimulus?

At the time of enactment, The White House Web site estimated that the $787 billion American Recovery and Reinvestment Plan would create 3 – 4 million jobs in 2010 and 2011.

By the end of the first quarter of 2010, The government web site reporting on actual outlays and jobs created indicates that while $202.5 billion in contracts have been awarded by the end of the first quarter of 2010, only $61 billion to date has been paid out and that has created 682,226 jobs.

The Congressional Budget Office estimates that the Act will create anywhere from 2.9 to 7.7 million jobs. The average of its range of estimates for new jobs created in 2010 is 2.36 million, or 587,500 per quarter. Refer back to Table 1. The economy is only generating half that number so far in 2010, 252,000 and 232,000 in quarters I and II, respectively.

Conclusion

Let’s assume the CBO numbers are correct. What would that mean? As indicated in Table 2, it would mean that while the Government is creating 587,500 jobs per month, the private sector on its own is still firing people net, e.g., for the second quarter, the private sector dismissed 355,500 (587,500 – 232,000).

Table 2. – Estimated Employment Effects of Government and Private Sector

(in thousands)

These numbers suggest the government should keep the printing presses running until the private sector actually starts adding to the jobs being created by the stimulus package.

And that could take some time….

Of course, the CBO numbers might be wrong.