Lakshman Achuthan of ECRI on Jobless Recovery
Tuesday, July 21, 2009SUZANNE PRATT: Joining me now with more on today's Bernanke testimony, plus a closer look at what people are calling the jobless recovery is Lakshman Achuthan. He is a business cycle expert at ECRI. Lakshman, welcome again to the program.
LAKSHMAN ACHUTHAN, BUSINESS CYCLE EXPERT, ECRI: Thank you.
PRATT: So before we get into our topic of the labor market, I want to just ask you your thoughts on the Bernanke testimony today. What is your takeaway from that?
ACHUTHAN: I mean on the one hand, it's nice that we're even talking about an exit strategy because it suggests that we, as ECRI believes that this recession is drawing to a close and we need to start thinking about undoing many of the things that were done to combat the recession, in particular on the Federal Reserve side a lot of easy money but of course the devil is always in the detail and in this case it's all about timing. When do they begin to pull back?
PRATT: And one of the things the Fed chairman was talking about today was unemployment. He said that we may not see a peak in the unemployment until 2011 which is a ways away which brings us to our discussion of the jobless recovery. Explain to people, what do we mean when we talk about a jobless recovery?
ACHUTHAN: Well when you see indicators like GDP or industrial production or retail sales and income measures, for various reasons these will begin to rise in the beginning of a recovery when a recession is over. However we don't see a lot of job growth. That lags behind. In 2002, when we were coming out of the last recession and also in the early 1990's, we had just that where GDP and production and sales all went up and jobs did not grow.
PRATT: You will have to excuse us. We have apparently a fire safety test here on the floor of the New York Stock Exchange. Just bear with us for a second. Can you?
ACHUTHAN: Yes.
PRATT: Can you explain for me the paradox though of a jobless recovery? How is it possible that you can still be having an economy that's recovering and all these people are still losing jobs?
ACHUTHAN: Yeah. The actual job losses will begin to abate for large sectors of the job market, in particular, the service sector. That's where 90 percent of us work. Nine out of 10 people work there and I expect that as the recession draws to a close this summer, that we'll start to see jobs growth in the services sector and certainly not job losses. The problem really, is in the manufacturing sector where about one out of 10 people work but we see outsized job losses. In the last 10 years, we've gone from 18 million manufacturing jobs to 12, so we've lost a third of our manufacturing jobs and they're never coming back so it's kind of the tail wagging the dog, as it were and we'll probably have that this time around, too.
PRATT: Would you expect that we're going to see the economy shift and become even more of a service-sector economy, less manufacturing? Where are these people going to get jobs from?
ACHUTHAN: Yeah, they're going to be shifting over to the services sector. This is something that's been going on actually for decades where we have been shifting from a big manufacturing employment base to more of us working in services. Mind you, the manufacturing portion of GDP is still quite high. It's on the order of 40 percent or so, but just less and less people are needed in order to produce that much goods. So if you're in manufacturing, it's not a bad idea to see if you can get a job in services.
PRATT: What about those people who are making these doom-and-gloom predictions of 25 percent for the unemployment rate? Is that really a possibility, do you think?
ACHUTHAN: Not for the headline unemployment rate that right now is about 9 1/2 percent, because you really need to have a depression in order to get those kind of unemployment rates and that is simply not going to happen. Our leading indicators, the weekly leading index has soared to a multiyear high and there is just no way that we're going to have this recession accelerate to the down side. It's not happening.
PRATT: I hope you're right. I think we have to leave it there, though. Thank you for joining us.
ACHUTHAN: All right.
PRATT: My guest this evening, Lakshman Achuthan.
