December 6, 2002
There's Little Comfort in Consensus
It's reassuring to note that most economists are calling for respectable growth in the economy in 2003. In fact, the degree of consensus in that positive outlook is remarkable. In the eyes of most analysts, the 2001 recession has been over for nearly a year, and the soft patch the economy is in right now is just that, not a prelude to a second decline.
But there are a few things you should know before you close the books on the 2001 recession. For one, the economy outside our windows does not care a whit whether we economists agree, or disagree. In the late 1990's, the economy grew right past every stop sign that the "consensus" of forecasters tried to put in its path. It could prove to be just as stubborn, in the opposite direction, in the year ahead.
Even more disturbing is our track record on calling changes of directions in the economy. If you think about it, recessions, or periods of economic contraction, are fairly rare occurrences in the national economy. If you forecast growth, you will be right most of the time. That helps explain why recessions always seem to catch us a bit off guard.
Few of us are expecting the labor market to take off in the remaining months of 2002 -- strong hiring usually comes after a post-recession expansion is well underway. But the stall in hiring since August has to be a concern. According to the November report on payroll employment released by the Bureau of Labor Statistics, over the last three months the nation's payrolls have actually shrunk by 38,000 jobs. That slowdown has finally shown up in the widely watched national unemployment rate, which jumped by 0.3 percentage points in November, to 6.0 percent.
Given the slack capacity in the economy, there is little reason to expect that a still-sputtering economy could be expected to maintain the same kind of consistent expansion in payrolls that it did during the boom times of the last decade. But if the job market doesn’t show some improvement soon, the growth in income -- which provides the fuel for consumer spending -- will be seriously threatened.
For the manufacturing economy, at least, there has been a clear change in direction. The once promising recovery in production levels that began last December has come to an abrupt halt. That change, combined with the surprisingly strong surge in productivity reported by BLS has proved to be a double whammy to factory payrolls, which are down by nearly 2 million jobs nationally since March of 2000. Many fear that the squeeze on profits has caused employers to accelerate out-sourcing and labor-saving productivity enhancements, such that many of the jobs being cut will never be replaced.
Truth be told, however, the downward trend in manufacturing jobs is a story that predates the onset of the recession. The more dramatic turnabout has come about in hiring in theservices producing side of the economy. The fact that these sectors could only provide 11,000 net new jobs in November explains the economy's overall loss of 40,000 jobs for the month more than anything else. Once again, only the health services industry showed any significant growth, adding 27,000 jobs in November.
In the wake of these unsettling reports, there is certainly some comfort in the words of the wise economists who tell us that job growth comes at the end, not the beginning, of economic expansions. While we can certainly fit the November job report to this optimistic script, we know that it also fits another, darker, direction than none of us want to see the economy follow.
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