So far, the current shift in payroll growth pales by comparison [to the shifts during previous recessions], suggesting that the economy is not suffering as much as many fear. The last recession officially ended in November 2001 and since then payrolls have grown by an average of about 100,000 per month. In the past two months payrolls have dropped by an average of 43,000. The total swing is 143,000 and this represents a 1.7 million annual change or 1.2% of the total number of payroll jobs currently in existence. This is a significantly smaller shift than those that occurred in the recessions of 1990-91 or 2001.
Why? Well, one reason is that we may not really be in recession. Swings of 100,000 per month in jobs are barely above the level of statistical significance. Another reason is that we have seen a major shift in demographic factors.
How can the economy still grow if payrolls are shrinking? The answer is productivity growth: more output per hour worked. For an historical example, we need look no further back than 2002 and the first half of 2003. During that 18-month period, payrolls declined by an average of 50,000 jobs per month (worse than the average in the past two months) while real GDP expanded at a 2% annual rate (matching our forecast for Q1).
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