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Is Down the New Up?

Judging from the mostly upbeat tone of some news reports, you would think that the jobs picture is brightening. The nation lost 216,000 jobs in August, compared to losses of 276,000 jobs in July and 463,000 in June. At the metropolitan level, Brookings’ latest MetroMonitor shows (but without the celebratory tone) that 60 of the 100 largest metropolitan areas lost fewer jobs between March and June than between January and March. Are these numbers cause for rejoicing?

Suppose you had $10,000 in your 401(k) account in May, then lost $1000 in June, $750 in July and another $250 in August. The pace of your losses slowed from July to August, but you would never call that good news, since you were still $2000 worse off in August than in June. So why would anyone think that three months in a row of job losses totaling 955,000 jobs is good news? When it comes to jobs, is down the new up?

 At best, a declining rate of job loss could mean the beginning of a U-shaped job market downturn-and-recovery pattern, with ever-slowing rates of job loss eventually giving way to small and then growing job gains. The odds are pretty good that things will work out that way, but there have been a number of times when they didn’t, including the 1990-91 and 2001 recessions and the first half of this year.

Since 1939, when the federal government began to collect payroll employment data, there were 12 previous episodes of at least three consecutive months’ job loss in which the pace of job loss slowed each month beginning with the second month. In seven of these episodes (in 1949, 1954, 1958, 1975, 1980, 1982, and 2003) employment followed the happy U-shaped (smile-shaped?) pattern: job growth resumed after a few months of ever-slowing job losses, though sometimes an additional month of losses interrupted that growth. But in the remaining five episodes (in 1944, 1960, 1990-91, 2001-02, and January through May of this year) the pace of job loss accelerated for a month or more after initially slowing. The smile turned into a frown. The nation didn’t start adding jobs until four to seven months after the end of the declining-job-loss episode and, in the case of the episode earlier this year, it still hasn’t begun adding them.

 Technically speaking, the nation may be in an economic recovery, although, as I argued last week, it isn’t happening everywhere and may not last long. For laid-off workers and anyone else who’s looking for a job, it’s much too soon to break out the champagne.