This Week's Employment and Productivity Reports and the Outlook from Here

In October I predicted that U.S. nonfarm payroll employment would never fall below 134 million (a level that would make this recession almost as deep as 1982). This prediction still makes sense to me, even though I did not anticipate that the Treasury and the Fed would themselves contribute to labor market damage.

Friday's employment report put nonfarm payroll employment at 136 million, having fallen 0.5 million in a month. Thus, I am predicting that we will not have four consecutive months like last month.

Productivity is what ultimately determines employment, and that looks good so far. On Thursday we learned that output per hour grew at 1.3% (annual rate) from 2008 Q2 and Q3, which is similar to the overall pace for 2007 and exceeds the pace for 2006. For the entire calendar year 2008, it looks like productivity will have grown more than it did for either of the prior two calendar years. By comparison, productivity growth was NEGATIVE in 1982 and (according to Cole and Ohanian) in EACH of the years 1930-33.

You may have noted the contrast between this year's employment performance and GDP performance. When productivity grows, output can grow even while employment falls. We are in a recession (and have been since late 2007) by the employment definition (NBER uses this) but not yet by the GDP growth definition. We likely will finish 2008 with more GDP than in any year in history, yet less employment than in 2007. The GDP and productivity performance is quite different from "severe recessions." What is severe about the 2008 economy is the news coverage, and the assault on the taxpayer!