Thursday, February 03, 2011

Norris: From 1983, Hope for Jobs in 2011

by Calculated Risk on 2/03/2011 10:10:00 PM

Note: Earlier I posted some thoughts on employment: Employment Situation: A Lighter Shade of Gray

From Floyd Norris at the NY Times: From 1983, Hope for Jobs in 2011

In January 1983 ... the unemployment rate fell to 10.4 percent from 10.8 percent. It was the first such decline in five years, but few thought it significant.

“The A.F.L.-C.I.O.,” The Washington Post reported, “said yesterday that there was no real improvement in unemployment last month because the decline was caused primarily by people dropping out of the labor force, rather than finding jobs.”

... the rate at the end of 1983 turned out to be 8.3 percent.
Norris points out some differences and similarities between now and then, and he is hopeful something similar will happen with unemployment this year. But I think he is too optimistic.

First, in 1983 the participation rate was all of 0.3 percentage points below the recent peak. Now it is 1.9 percentage points lower than the recent peak - suggesting some bounce back is more likely (keeping the unemployment rate elevated).

But a far more important difference between now and then is ... housing. There were just over 1 million housing starts in 1982, and starts picked up sharply in 1983 rising to over 1.7 million!

I've been pounding the table arguing that housing would add to both GDP and employment growth in 2011 for the first time since 2005. But does anyone think housing starts will increase by 650 thousand units in 2011 (more than doubling the just under 600 thousand units in 2010)?

Not. Gonna. Happen. Not with the huge overhang of existing vacant housing units (the overhang is declining, but we still have a ways to go). Housing was a key engine of job growth in 1983, but housing will have less of an impact in 2011.

I hope Mr. Norris is correct and the unemployment rate drops sharply in 2011, but my guess is the decline will be more sluggish this year than in 1983.