Editorial | Deconstruction
By TERESA TRITCH
Published: April 7, 2012
The employment report for March, released Friday, was a big disappointment. After three straight months of job gains above 200,000, only 120,000 new jobs were added last month.
After a Winter of Strong Gains, Job Growth Ebbs (April 7, 2012)
Of course, one month’s data does not a trend make. But March’s reversal is a painful reminder that nearly three years into the expansion, the recovery has been a climb toward the rim of the crater left by the Great Recession, not an ascent to new economic heights. As the graphs with this piece show, the deepest deficits are in those areas that matter most to most Americans: jobs and home equity.
That has left Americans wondering when, or if, the recovery will translate into broad prosperity, and policy makers looking either to take credit for gains so far or to assign blame for continued hard times.
What distinguishes this jobs recovery from others is the sheer scale of the job loss that preceded it. The economy has regained 3.6 million jobs since employment hit bottom in February 2010, but it is still missing nearly 10 million jobs — 5.2 million lost in the recession and 4.7 million needed to employ new entrants to the labor market. The Economic Policy Institute estimates that at the average rate of job creation in the last three months, it would take until the end of 2017, fully 10 years from the start of the Great Recession in December 2007, to return to the prerecession jobless rate of 5 percent.
And there is no guarantee we will ever get there. It took about four years to close the job gaps created by the recessions that began in mid-1981 and mid-1990. In the tepid expansion after the 2001 recession, the job gap had still not closed by 2007.
Without good jobs, families certainly can’t power the economy with spending. Incomes always fall in recessions, but they usually rebound and then reach a new high. That didn’t happen after the 2001 recession. Analysis of government data by Moody’s Analytics shows that median household income, in 2011 dollars, peaked at $56,000 in 2000, and did not rebound to that level. When the Great Recession hit, income fell again. Though there has been some progress in the last two years, median income, now at $52,000, is about where it was in 1997.
At the same time, home equity — for most families, the most important store of wealth — has been devastated by the housing bust, with $7.4 trillion wiped out since home prices peaked in 2006. Nascent signs of life in the spring selling season are welcome, but it will take a far stronger economy, or far more aggressive antiforeclosure efforts, to substantially rebuild lost equity anytime soon. Even at that, many of the nearly 12 million homeowners who owe more on their mortgages than the homes are worth will never get above water.
Without a revival in jobs, income and home equity, other indicators of recovery — like a rising stock market and more consumer spending — largely reflect gains among the top echelon of earners. Such lopsided growth can make for good numbers, but doesn’t presage broadly higher living standards.
So how to nurture the recovery, such as it is? If long-term unemployment remains high through 2012, Congress will need to renew federal jobless benefits beyond their expiration at the end of the year. If incomes and spending remain constrained, tax relief for low- and middle-income earners will also need to be extended. The high-end Bush-era tax cuts should be allowed to expire, with the money going toward programs that have more economic impact. Congress, which has committed to deficit reduction starting in 2013, must avoid heedless cuts, in favor of minimal and balanced tax increases and spending reductions. And the Federal Reserve must resist calls for premature tightening.
To oppose such basic measures is to deny reality. The current recovery is largely the result of support from Congress and the Federal Reserve. A self-reinforcing, virtuous cycle of growth has yet to take firm hold, and until it does, the need for help remains.