Rising employment and GDP growth go hand in hand

Much has been made of the fact that rising GDP has created few jobs since employment, as measured by nonfarm payrolls, bottomed at the  end of last year.  Worse, total employment remains about 400,000 below the level seen when the recession ended back in June 2009.

The problem the U.S. economy is facing is not structural unemployment, in my view, but a lack of significant economic growth, which is a byproduct of a financial crisis that was precipitated by the collapse in housing.


(click to enlarge)

The chart above measures year-over-year real GDP growth (blue line) and compares it to changes in nonfarm payrolls (red line).  Because the government releases nonfarm payrolls monthly and GDP quarterly, nonfarm payrolls are averaged in each quarter and compared with the same quarter one year ago.

For instance in the 1st quarter of 1994, GDP increased by 3.50% versus the 1st quarter of 1993.  During that same period, the average of nonfarm payrolls for January, February and March is compared to the average for nonfarm payrolls during the first three months of 1993. In this case, Q1’94 registers a gain of 2.63% over Q1’93.

Sadly, the huge loss of jobs almost seems reasonable given the severity of the 2007-09 contraction.

The 2001 recession, which was mild by historical standards, produced relatively worse losses in employment, and then was followed by a very slow recovery in the job market (see Jobless recovery).

Meanwhile, the boomerang in economic activity that ensued after the 1981-82 recession produced very robust employment growth (see chart in The recession is officially over).

Job growth will return when economic activity finally kicks into high gear. Unfortunately, the corrective action needed to spark a strong recovery in GDP has been and will likely remain elusive.