Another Bad Employment Report: Brad DeLong Calls Recession

If I were on the NBER Business Cycle Dating Committee, I would call this a recession:

The U-6 measure of unemployment--reported unemployed plus part-time for economic reasons plus marginally-attached workers all divided by the labor force plus marginally-attached workers--has risen by 1.1 percentage points in the past three months to its current level of 10.3 percent. It now stands 2.2 percentage points above its mid-2000s low, and is just a hair below the maximum reached in the 2001-2003 episode. As you all know, I have been unhappy with the conventional unemployment rate this decade--it has not been telling the same story as the other labor market indicators. U-6 seems to be a better fit to the overall state of the economy.

And by my book, U-6 is now telling us that we are in a recession.

But I am not on the NBER Business Cycle Dating Committee. There's no reason for them not to wait a couple more months before deciding thumbs-up or thumbs-down. And they may not, by their definition, call it a recession.

On the other hand, when I write my history--Macroeconomic Policy in the Age of Central Bankers (Princeton: Princeton University Press, 2025)--this will count as a recession starting in the last quarter of 2007.

The BLS this morning:

Employment Situation Summary: The unemployment rate rose to 5.7 percent, and nonfarm payroll employment continued to trend down in July (-51,000).... Over the past 12 months, the number of unemployed persons has increased by 1.6 million, and the unemployment rate has risen by 1.0 percentage point.... In July, the number of persons who worked part time for economic reasons rose by 308,000 to 5.7 million and has risen by 1.4 million over the past 12 months. This category includes persons who indicated that they would like to work full time but were working part time because their hours had been cut back or they were unable to find full-time jobs.... About 1.6 million persons (not seasonally adjusted) were marginally attached to the labor force in July, an increase of 197,000 over the past 12 months. These individuals wanted and were available for work and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Among the marginally attached, there were 461,000 discouraged workers in July, 94,000 more than a year earlier. Discouraged workers were not currently looking for work specifically because they believed no jobs were available for them....

Total nonfarm payroll employment continued to trend down (-51,000) in July. Thus far in 2008, payroll employment has fallen by 463,000. Over the month, employment continued to decline in manufacturing, construction, employment services, wholesale trade, and the information industry. Health care and mining continued to add jobs over the month...

Comments

[Leila Abu-Saba]

But if we're still employed, paying fixed rate on mortgage (1/3 through term of loan), kids are in public school, 401K funded, still have health insurance, is it a recession for us?

The local budget shortfalls are indeed a frightening prospect. I comfort myself with memories of New York City in the 70s. I lived on the Lower East Side when the cops wouldn't go there, cars and buildings burned and moldered, and the city was broke. We survived that. We'll survive this and it might not even look as bad.

[Brad Holden]

To emphasize MattY's point, both Brad DeLong and I are (sort of) employed by the state of California. It will be hard on some local economies if the Governator's plan to pay 200,000 state employees the minimum wage happens.

[Karl Bilawski]

I like your book title.

[Daniel Nexon]

If I had the talent, I'd build a time machine so that I could read that book now..... Perhaps you could tide me over with a contemporary history piece around the theme of "The Age of Central Bankers"?

[Dave D'Rave]

I called it a recession starting September, 2007, which is not canonical. "Official Recessions" must start on a quarter boundary.

The shocking drop in the velocity of money after August, 2007 was enough to cause a recession all by itself, but the steady drip-drip-drip of announced losses by various banks and investment firms has really put the knife in. Unemployment is a trailing indicator.

By the way, my analysis is that the GDP growth statistics (which are almost always quoted net of inflation) are high by about 2%, because of the current administration's policy of making up the inflation numbers. If we have really had solid growth over the last 5 years, then why is the GDP still $13 Trillion. If we really have growth, it should be going up.

[nathan]

Did you mentioned hours worked per week may be down slightly?
http://www.bloomberg.com/markets/ecalendar/index.html

I have a question. Perhaps you can provide perspective. In a July 7, 2008 copy of Barron's, in the "Market Laboratory" section it says "Personal income" was $12,317 (in billions) per "latest date" (May 2009), vs. $11,606 one year ago (in the "Economic Growth and Investment" section of Market Laboratory). This may be around a 6%+ increase in personal income. Q: why is aggregate macro income up so much while employment, labor, and the economy may be deteriorating or slowing?