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Economy

Depth and breadth of recession means payroll increases are still a ways off

July 27, 2009

Martin Shields, an associate professor of economics at Colorado State University, finds there is little evidence to suggest the job market is going to get better any time soon and this recession is much deeper than the unemployment numbers are letting on.

Editors note: Column written by Martin Shields, an associate professor of economics at Colorado State University. His research on Northern Colorado's economy is sponsored by a partnership between the Northern Colorado Economic Development Corp. and Colorado State University.

The opinions expressed are those of the author and do not necessarily represent the views of the university
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20-year local unemployment high

A recent front page of the Fort Collins Coloradoan painted a bleak picture of the local economy, pointing out that the recession has wiped out three years of employment gains.

As a result, Larimer County's unemployment rate stands at 6.5 percent. Although well less than the state and U.S., the county's June unemployment rate was higher than any time in the past 20 years.

I've written before that a diversified economy and highly educated work force means Northern Colorado tends to handle downturns better than most places.

But that provides little solace to 11,300 county residents currently looking for work. The question that matters most to them is when will things get better?

The answer depends on how one defines "better."

Hints the national economy has turned the corner

By some measures the national economy is indeed providing hopeful glimmers. Manufacturing activity and personal consumption expenditures are among the several closely watched leading indicators that have shown important recent improvements.

While real economic growth remains elusive, these recent developments have some suggesting the national economy has turned the corner. For example, Newsweek business writer Daniel Gross cites analysis of two good economic tracking firms and declares "the recession is really, most probably over."

Job market continues to worsen

The problem is even though economic output may have stopped shrinking, the job market continues to worsen, although less fast. And most Americans don't think a recession ends until unemployment drops and jobs become plentiful again.

Unfortunately, there is little evidence to suggest the job market is going to get better any time soon. This recession is much deeper than the unemployment numbers are letting on.

Employment hours cut back

Take for instance the increasing prevalence of part-time work. While millions of people have lost their jobs across the country, many millions more have seen their hours cut back. Before businesses start hiring, hours for the currently employed will have to increase.

But this will be a slow process. In a recent New York Times article, Dean Baker, co-director of the Center for Economic Policy and Research, indicated just restoring hours lost in the recession requires additional activity equivalent to supporting 4 million to 5 million jobs.

National housing oversupply

Another reason the labor market might be slow to recover is the national housing market remains stalled by oversupply. When the U.S. economy recovered from its last major downturn in the early 1980s, housing construction played an important driving role. This growth largely was fueled by pent-up demand, which originated from mortgage rates exceeding 15 percent.

Today, however, mortgage rates are near historic lows, and a new wave of foreclosures is threatening to sweep the nation, as the unemployed begin joining ranks with sub-prime defaulters. The upshot is that a robust national recovery in new housing construction, and the jobs they create remains on the horizon.

In the end, the data tells us two things. First, the worst might be behind us, and in that sense, things are indeed getting better. But the depth and breadth of the recession means that economic output is going to have to pick up considerably before payrolls increase in a meaningful way. And that still seems a ways off.

Originally published in the Coloradoan, July 20, 2009.