Floyd Norris had a column in the NYT yesterday noting that recessions with sharp job declines tend to be followed by sharp rebounds. This has been a past pattern, but it is likely not to hold in this case because the nature of the downturn is different. The past downturns would brought about by the Fed raising interest rates to slow the economy and reduce inflation. This pattern made it easy to set the stage for the recovery. The Fed lowered rates setting off a surge of construction of purchases of cars and other durable goods. Construction and manufacturing employment surged in the upturn, accounting for 56.9 percent of the job growth in the private sector in the first year after the 1958 recession and 52.0 percent of the growth following the 1961 recession. The impact of these sectors was somewhat less following the 1981-82 recession, but they still accounted for 33.9 percent of the private sector job growth in the first year after the recession. The economy has lost more than 8 million private sector jobs in the last two years. If it were to regain these jobs over the next two years, just to match the 1983 share, construction and manufacturing would have to 2.7 million jobs. That does not seem likely. Assuming that these sectors do not show their past strength in recoveries, it is difficult to see what other sectors can take up the slack.
--Dean Baker
