The following Picture is the “scary graph”, a fitting reminder of the grueling employment situation on this Labor Day!
In terms of employment, the present cycle is a different “animal” altogether. The counterpart is that in terms of real output growth it is also a lot worse than any other in the set of post-war recessions.
Some argue that increases in productivity could delay employment gains, but the figure below contradicts the hypothesis. It shows labor productivity over the seven quarters following the start of a recession.
Note that the behavior of labor productivity after the start of the 2007 recession is right at the bottom, dueling for last place with productivity gains observed in the 1981 recession. Nevertheless employment recovered much faster in the 1981 recession. Observe, also, that at the start of the 2001 recession productivity gains were strong, losing only to the gains obtained after the start of the 1948 recession. But there is a world of difference between the rise in employment in the two cycles. The 2001 recession had also unique features. It was the only recession without a fall in real output. The fall in employment was much less than was common, but the employment recovery was the slowest!
However, unique to the 2007 recession is the steep drop in nominal spending, which turned negative for the first time since 1938!
And who is best able to increase nominal spending? Take a guess!