The "New Normal"—No Job Growth

10/06/2009 1:00 pm EST


John Mauldin

Chairman, Mauldin Economics

John Mauldin, editor of Thoughts from the Frontline, says the economy cannot grow quick enough to create all the jobs that are needed to drive down unemployment.

Unemployment is high and rising. But if the recession is over, won't employment start to rise? The quick answer is no.

First, the unemployment rate is now officially at 9.8%. We are approaching the official high we last saw at the end of the double-dip1982 recession.

If you add those who are employed part-time for economic reasons (i.e., they can't get full-time jobs), the unemployment number rises to 16.8%. There are roughly nine million people who are working part-time because of business conditions, or those are the only jobs they could find. The average work week is at an all-time low of 33 hours. If you adjust for inflation, workers are making roughly what they did in 1980.
Let's assume that we would like to get back to a 5% unemployment rate. To get to 5% unemployment, we will have to create 14 million jobs in the five years from 2010-2014. Let's round it off to 15 million. To get back to 5% unemployment within five years, we need to see, on average, the creation of 250,000 jobs per month.

If you average the ten years from 1999, you get average monthly job growth of 50,000. If you take the average job growth from 1989 until now, you get an average of 91,000 a month. If you take the best ten years I could find, which would be 1991-2000, the average is still only 150,000. That is a long way from 250,000.

Go back to 2003, the year after the end of the last recession. A few hundred thousand jobs were created. Why so slow? Because employers gave more time to those who were already employed and to part-time workers. Because of the near-certain loss of jobs for the next few months and the slow recovery, it is a very real possibility that unemployment will still be well over 10% a year from now.

Even with robust growth of 200,000 jobs a month thereafter for the next two years, unemployment will still be close to or over 9%. And that is before this administration makes the economically suicidal move to raise the top tax rate by 10%. A tax increase of the size being contemplated, with unemployment at today's level, will guarantee a double-dip recession, which of course means that unemployment will rise, not fall.

The economy is in the process of bottoming. The year-over-year comparisons are getting easier. We will find that new level of spending and economic activity and grow from there. But it is going to be awhile before we get back to full employment. While the numbers may say recovery, it is not going to feel like one.

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