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Recession Analysis

How fast can the job market fully recover from this recession?

This is a work in progress, last updated December 24, 2009.

This analysis takes two approaches, including:

Total employment Employment growth rates

Our data source: Bureau of Labor Statistics.

Recessions since 1940
Start End Duration
Feb 1945 Oct 1945 8 months
Nov 1948 Oct 1949 11 months
Jul 1953 May 1954 10 months
Aug 1957 Apr 1958 8 months
Apr 1960 Feb 1961 10 months
Dec 1969 Nov 1970 11 months
Nov 1973 Mar 1975 16 months
Jan 1980 Jul 1980 6 months
Jul 1981 Nov 1982 16 months
Jul 1990 Mar 1991 8 months
Mar 2001 Nov 2001 8 months
Dec 2007 Aug 2009 20 months

Total employment

The graph below shows total nonfarm employment (blue line) from 1940 thru November 2009. Also shown are the normal highs and lows (grey lines) about 5% from the blue line. The blue dot on the right is the BLS projection for 2018, and the black line is the statistical best-fit (normal conditions).

Notice the following:

  • Total employment today is lower than it was in 2000, almost 10 years ago
  • This is the first time since 1940 that we have been below the low-normal range
  • We are now 10 to 15 million jobs "behind the curve" (if you will)

Between now and 2018 (9 years), we need to add 21 million new jobs to get back on the curve (black line). The most new jobs we have ever created in 9 years was 24.2 million between 1991 and 2000 ... so it is possible. However, the average number of new jobs created in 9 years (for the last 25 years and excluding this recession) is 17 million. And, employment growth is slowing down. You can draw your own conclusions from this.

Employment growth

Now shift gears and let's approach the recession recovery differently.

The graph below shows the annual employment growth (year over year) from 1940 thru November 2009 (blue line). Also shown is the statistical average (green line) to approximate the workforce growth rate. The black lines in 2010 and forward are possible recovery timelines. Watch the video on the Job Market Report to understand this better.

Notice the following:

  • Deep recessions (40s and 50s and more) recover quickly, typically within one year
  • Shallow recessions (1991 and 2008) recover slowly, taking 1 to 2+ years
  • This is the deepest recession since 1949 (1945 was even deeper)

Also notice that every recession ended just before the blue line turned up. It is VERY likely that the current recession was over in August 2009.

Since this recession is deep, we could easily recover in one year. By "recover" we mean getting to the point where we're adding jobs. Above the black line in the graph below is adding jobs, and above the green line is adding jobs faster than the workforce is growing.

HOWEVER, once we recover and start adding jobs, we have to absorb the 10 to 15 million people who are now out of work. This will take time (discussed above under Total employment).

The "W" shaped recession

Notice the "W" shaped recession between 1980 and 1984. This is where two recessions were virtually back to back ... a double-dip.

Some analysts are worried that we may have another W-shaped recession today. For what it's worth, deep recessions have never double-dipped. In fact, the W-shaped recession in the early 1980s was very shallow and only happened once.

Post recession unemployment changes

Between 1950 and 1984, the unemployment rate dropped immediately after the "official" end of every recession. In the last two recessions (1991 and 2001) unemployment increased by less than 1%, shown below with brown circles.

It remains to be seen what will happen to unemployment after the end of the 2009 recession. From these data, one might conclude that it will rise a maximum of 1%. However (read the Total Employment analysis at the top of this page), we are outside the normal limits of employment variation for the first time.

The take-away

Here are the highlights of this page:

  1. This is the worst recession of a lifetime for almost everyone in the workforce
  2. The recession was probably over in August 2009
  3. Recovery to the point of adding jobs can be quick, as early as mid-2010
  4. Recover to the point of absorbing the 10 to 15 million unemployed will take years

Hope this analysis helped. If you're a "student" of these kind of analysis, let me known - we should compare notes. Email Mark@JobBait.com.