The Right Comparison Between Recoveries

The Wall Street Journal ran a graph this weekend claiming, “The private sector is adding jobs … but the recovery is slower than in past cycles.” In fact, even though it is not fast enough, the rate of job growth is actually faster now than was the case at comparable points of the past two recoveries.

How did the Wall Street Journal get it wrong? The problem is that their graph indexes job growth to the start of the recession, not the start of the recovery. The economy stopped contracting at the end of the second quarter last year and has since expanded for four straight quarters. So June 2009 is a reasonable date to pick for the start of the recovery, although the “official” date has not yet been set by the National Bureau of Economic Research (NBER). Private sector job growth started six months after GDP started expanding in the current recovery. By contrast, in the 2001 recovery private sector job growth did not begin until 22 months after the official NBER end date of the recession, and in the 1991 recovery job growth did not start until 12 months after the official NBER end date of the recession.

The graph below indexes jobs to the end of the economic contraction and beginning of recovery, not the start of the recession, and indicates that we have recovered more jobs so far than in the two most recent previous recoveries. The graph that follows makes that point even more strongly for aggregate work hours.

The headline of the Journal’s graph should have been that the recession that began in December 2007 was much more severe in terms of job loss than past recessions, even the 1982 recession. That’s because the most recent recession resulted from a financial panic that caused severe damage to household wealth and business and consumer confidence. The damage caused by financial crises is typically much more widespread, indiscriminate and longer lasting than that caused by other recessions. So the fact that private businesses have added jobs, on net, in each of the last eight months – and that job growth has come earlier than in the past two recoveries – could be taken as a sign that the medicine applied to the economy has helped it to begin the process of healing much earlier and robustly than would otherwise have been the case.

Despite job growth starting earlier than in the last two recoveries, the Administration is not satisfied that it is not even faster, and is seeking additional measures to speed job growth, such as through a small business lending fund. As President Obama said this weekend, the Administration is committed to “doing everything we can to accelerate job creation.”