Flying Pink Unicorns

Have my economic projections changed?


I was recently asked whether, given the still awful employment reports coming out every month, whether I'd care to revise my economic projections. The answer is basically no. I was precisely correct regarding when the recession would end and the growth in the economy in the last quarter, but I was perhaps too optimistic in terms of the recovery of the job market. Job losses have slowed dramatically. The economy lost 645,000 jobs/month from November 2008-April 2009, 357,000 from May-July 2009, and 188,000/month from August-October. So the job market is clearly deteriorating at a much slower rate than late last year and early this year.



http://www.bls.gov/news.release/empsit.nr0.htm



But less bad being the new good isn't really very good. I actually thought the job market would be closer to zero jobs lost by now. That less unhappy day is probably still a few months away. But it won't be long before we're gaining jobs, and after a few sluggish months of job growth I still think that by the middle of next year job growth will be quite strong.

So nothing has changed my prediction for a strong economic recovery, which will be clearly felt by the middle of next year. I may have been off on timing, but everything else stands.



A window into my thinking can be seen by the striking Third Quarter 2009 Productivity Report, released Thursday.


http://www.bls.gov/news.release/prod2.nr0.htm


The money sentence is, "Nonfarm business sector labor productivity increased at a 9.5 percent annual rate during the third quarter of 2009." This is the best quarterly result since the third quarter of 2003, and is a huge number. Since that third quarter of 2003, the next highest number was the 6.9% of the 2nd quarter of 2009, and the next highest 5.5 percent in the third quarter of 2007 (just before the recession began). No quarter since 1999 has been over 10%, so 9.5% is a big number. Output increased 4% (not bad at all, but not quite a boom), and hours worked DECREASED 5%. Business cannot keep that up for long at all. Fewer hours worked and more production. Very soon, if more production is desired by business, more worker hours will be needed. This will first be accomplished by asking current workers to work longer hours. There is, sadly, plenty of scope for this, which is why I may have been too optimistic about how fast the labor market would recover. However, you can only produce so many more widgets (or cars, or refrigerators, or legal briefs) with your current staff before you have to hire more people. That point will be reached soon, probably during the Winter or very early Spring. From there, I expect demand to be so robust, as a result of government stimulus, very low interest rates, a lot of money sloshing around, and pent up demand for consumer goods, including, incredibly, cars, that businesses will have to hire a lot of workers, quickly, and continue doing so for a long long time.