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Comparisons on the third anniversary since recession started
show weak job growth, high profits
March 2004 saw strong job growth after many months of declines or weak growth. The new March jobs data provide an opportunity to examine labor market and other economic trends in the three years since the recession began in March 2001 and to compare these trends to the same three-year periods in the business cycles of the 1970s, 1980s, and 1990s (see TableAdobe Acrobat (PDF)).

As shown in the charts below, this business cycle is the only one since the 1930s to still be suffering a job loss after three years. The private sector has lost 2.5% of its jobs (2,792,000), U.S. manufacturing has lost 15.9% of its jobs (2,704,000), and even when incorporating the 3.1% gain in government jobs (657,000), the labor market on the whole has still lost 1.5% (2,135,000) of all jobs. In the prior three business cycles, instead of still being in the hole, the economy had actually generated 2.7% more jobs after three years.

Not surprisingly, poor job creation has led to higher unemployment: a 1.4% rise from 4.2% in early 2001 to a 5.6% unemployment rate in early 2004 (first quarter). In and of itself, this 1.4% rise in unemployment over the last three years is as high as the increase in the first three years of the business cycles in the 1970s, 1980s, and 1990s. But when one accounts for the historically large drop in labor force participation over the last three years—that is, by incorporating the missing labor force (see charts below)—then the 3.1% rise in unemployment has been even larger in this downturn than in prior downturns (up 0.7%).

Change in unemployment three years after start of recession

Change in unemployment three years after start of recession, adjusted for missing labor force

One of the most remarkable aspects of the current downturn is that total wage and salary income (inflation adjusted) has not risen at all in the last three years. Moreover, the total wages and salaries generated by the private sector have actually fallen by 1.7%. Meanwhile, domestic profits grew by 57.5%. In other recent downturns total wages and profits grew in tandem, with total wage and salary income up by 3.7% over a comparable three-year period and domestic profits up by 12.6%.

Productivity has grown far faster, increasing 13.6% so far in this cycle versus a 6.2% increase in the same period of the last three business cycles. This greater productivity growth, however, has not translated into faster hourly wage growth, which was only slightly faster in this period compared to other cycles (2.2% compared to a 1.3% decline).

Bush Administration's tax cuts falling short in job creation
The Bush Administration called the tax cut package, which was passed in May 2003 and took effect in July 2003, its "Jobs and Growth Plan." The president's economics staff, the Council of Economic Advisers (see background documents), projected that the plan would result in the creation of 5.5 million jobs by the end of 2004—306,000 new jobs each month, starting in July 2003. After eight months of falling considerably short of that projection, job gains for the month of March finally hit that level. For the nine months as a whole, however, the administration projected that a total of 2,754,000 jobs would be created after the tax cuts took effect. In fact, only 689,000 jobs were created over that period for a cumulative shortfall of 2,065,000 jobs.

Job performance in March

 

Difference between actual and projected monthly job growth


Greatest sustained job loss since the Great Depression
Since the recession began 36 months ago in March 2001, 2.0 million jobs have disappeared, a 1.5% contraction. The Bureau of Labor Statistics began collecting monthly jobs data in 1939 (at the end of the Great Depression). In every previous episode of recession and job decline since 1939, the number of jobs had fully recovered to above the pre-recession peak within 31 months of the start of the recession. Today's labor market would have 3.4 million more jobs if jobs had grown by the 1.1% rate that occurred in the early 1990s recession and so-called "jobless recovery," the worst record prior to this current period. The picture is bleaker for private-sector jobs, which have dropped by 2.6 million since March 2001, a 2.5% contraction. (See state data and organizations for more information on your state.)

Since the official end of the recession in November 2001, total jobs have shrunk by 323,000 (an 0.2% contraction) and private-sector jobs have dropped by 560,000 (or 0.5%).

Change in total employment, three years after the recession began

Change in private sector employment, three years after the recession began

 

 

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