With record competition for jobs, why does Bernanke think the recession is over?
It's tough to find a job these days. In 2000, the Labor Department began keeping statistics on the ratio of unemployed workers to permanent job openings. This July, that ratio hit a record of six to one -- representing the 14.5 million official unemployment count to 2.4 million permanent full-time jobs open (in the 2001 recession, the ratio was about two to one). With the open position ratio at three times the previous record, it makes me wonder why the Fed thinks the recession is over.
This is scary for workers. The New York Times interviewed 51-year-old Milwaukee resident, Debbie Kransky who lost her medical billing job in February. Since this was her second job loss in two years and the job she lost in February lasted only a month, her last unemployment check -- $340 -- is her final one. She has run through her $10,000 life savings.
Kransky -- who lives alone in a one-bedroom apartment -- is understandably worried. She spent $10 to drive her jeep downtown to interview for a clerical job with a health insurance company , but she got stood up after waiting an hour. As she told the Times, "I've worked my entire life. I've got October rent. After that, I don't know. I've never lived month to month my entire life. I'm just so scared, I can't even put it into words."
This bad news on the jobs front is not dissuading the Fed from getting optimistic about the end of the recession. Two weeks ago, Ben Bernanke defended his pronouncement that the recession was nearly over by citing the consensus of economic forecasters for "moderate economic growth for the remainder of this year and next as credit markets thaw, consumer confidence takes time to heal and the federal government begins to unwind spending and lending programs intended to mend the economy."
Of course the National Bureau of Economic Research (NBER) that sets the official start and end-dates for recessions (a decision made largely on the basis of the collapse in the job market) decided the beginning of the current recession was December 2007 based on payroll employment. And since then, that collapse has been extreme across regions and industries in the U.S.
The regional job damage has been worst in the West and South, but significant nationally. Between the start of the recession and July 2009, job openings fell 45 percent in the West and the South, 36 percent in the Midwest and 23 percent in the Northeast.
Meanwhile, job openings across industries have fallen significantly, with manufacturing being the worst. Since the end of 2008, manufacturing job openings have tumbled 47 percent, 37 percent in construction and 22 percent in retail. Those in education and health services fell 21 percent this year and -- despite the $787 billion stimulus spending -- government job openings slid 17 percent.
So the Fed's comment on the recession nearing an end looks to be based on Gross Domestic Product (GDP) growth forecasts rather than the NBER's employment reality -- which for Americans like Kransky means that their fears are going to be magnified.
This distinction is more than academic. If the Fed changes policy -- e.g., by draining $1 trillion from the money supply -- in response to what it thinks is economic growth it could further slash the odds that U.S. employers will start creating enough new jobs to end this recession.