Comparing Current Payroll Employment Changes with Past Recessions
The labor market has now lost jobs for nine straight months, with September's recent loss of 159,000 being the worst yet of the streak. The "R" word has been tossed around plenty this year, although the National Bureau of Economic Research has not declared that a recession has started (which it typically doesn't do until well after a recession has begun). But now seems a good time to ask how employment behavior so far this year sizes up to that of recent recessions.
Since January, the U.S. economy has shed 760,000 jobs. During the four previous official recessions net employment losses were higher: 837,000 in the 1980 recession; 2,172,000 in the 1981-1982 recession; 1,282,000 in 1990-1991; 1,629,000 in 2001. The magnitude of job losses depended on the duration of each recession. For example, the 1980 recession lasted just seven months, while the 1981-1982 recession lasted seventeen and the 1990-1991 and 2001 recessions were each nine months long.
To compare across recessions, we can compensate for differences in recession length by looking at the average monthly payroll loss over these periods. The average monthly job loss in each of the four recessions was 120,000, 160,000, 142,000, and 181,000. While the average monthly loss of 84,0000 that we have experienced so far in 2008 looks rather moderate by comparison, last quarter's monthly average loss of 100,000 is closer to those recessions' averages.
The behavior of employment around the past four recessions can be seen in the quarter-by-quarter percent employment change in the charts below. Note that neither the onset of job losses in a recession nor their reversal necessarily coincides with the official start and end dates of the recession. For example, job losses did not begin until the fourth month of the 1980 recession, as the 1.4 percent growth in the recession's first quarter shows. Interestingly, employment growth in the recession's first quarter actually exceeds growth in the quarter immediately preceding the recession. Job losses did not start until the second month of the 1981-1982 recession, and this delay again helps the first recessionary quarter to be in positive territory. Quarterly gains resumed immediately after each of the 1980s' recessions.
Employment patterns in the two most recent recessions were quite different from those of the 1980s. In 1990-1991 and 2001, job loss began immediately on or before the first NBER-designated month of the recession. This shows up as much weaker quarterly employment change from the get-go. Employment dropped 0.53 percent in the first quarter of the 1990-1991 recession, and it grew only 0.56 percent in the first quarter of the 2001 recession, a much slower pace than in the 1980s' recessions.
Another difference between the recessions of the 1980s and the two recent ones is that employment loss continued well after the recessions had ended in 1990-91 and 2001. The 2001 recession is the most obvious case, as losses continued for another six consecutive months after the recession's end.
Aside from the timing differences, the charts also show that losses occurred at a greater rate in the 1980s' recessions, reaching 1.91 percent of quarterly employment in 1980 and exceeding 3 percent at one point in the 1981-1982 period. The rate of loss was much slower in the two recent recessions, reaching just 1.69 percent in 1990-1991 and 1.24 percent during the 2001 recession. Losses continued to pick up pace after the end of the 1990-1991 recession, though, totaling 252,000 jobs in the second quarter of 1991. Losses also held strong following the 2001 recession, with 303,000 jobs gone in the first quarter of 2002.
In the third quarter 2008, employment loss sped up to an annualized rate of 0.73 percent. Given that some recent recessions started with job gains, this rate is not necessarily low compared to the beginning quarters of those. In the 1990-1991 recession, which was the only one of the four most recent episodes to see a decline in employment in its first quarter, the U.S. economy lost jobs at an annualized rate of only 0.53 percent. Given that the employment situation has deteriorated further in the midst of most recessions, labor markets may still have further south to go.