The V-shaped recovery is on, but will it be sound or another boom-bust bubble?
The payroll and employment report from Bureau of Labor Statistics for November 2009 suggest that the US economy is entering a so-called V-shaped recovery, rather than a slower and more painful U- or W-shaped one.
Not only were only 11,000 jobs lost last month, the figure for October was revised upwards. Initial unemployment claims are showing similar if not quite as dramatic improvement.
I think there are two reasons for the increasingly more rapid recovery in the job market. One is that companies were overly aggressive with layoffs last fall and winter. That’s not an observation made in hindsight, but a point that was made to me by several mid-level managers 9-12 months ago. The over-sized staff reductions made unemployment numbers even worse than what most economists predicted, but also allowed companies to return to or increase profitability evens as revenue declined.
Even so, the improved outlook for the labor market was no sure thing even a month ago when the unemployment rate topped 10% and initial unemployment claims seemed to be stuck above half a million a week.
While President Barack Obama’s administration has done many foolish things that I think will hurt the economy for years to come it did not monkey-wrench the jobs recovery by trying to slow layoffs through legislation or regulation. Companies were free, as they should be, to axe as many workers they felt necessary and because of that I think we’ll see faster employment growth next year than most expect today. In fact, the socially most helpful and economically least harmful thing the Administration and Congress have done this year is repeatedly extending unemployment insurance benefits for laid off workers. Those extensions will have to come to an end next year, probably in the second half of the year, even if it means cutting off workers who have been out of a job for two years or more. But extending the benefits was absolutely the right thing to do this year of relentless job cutting.
The trick in 2010 and 2011 will be to steer the economy towards growth that is based more on productivity gains and less on deficit spending, debt accumulation and a weak dollar. The latter three are stimulants that the US economy has relied on for several years now and they do not make for lasting economic growth. Gradually increased interest rates and smaller budget deficits might help prevent a bubble reflation. While 2009 is heading towards a happy ending, it was a lousy ride that I don’t think too many people will want to go through again.
