Economist Schunk analyzes April labor data
Highlights from April 2009 Data:
* South Carolina's unemployment rate rose to 11.5% in April from 11.4% in March. Unemployment in South Carolina is now at its historical high (though these data only go back to 1976). The unemployment rate has been climbing steadily since early 2008. While the current level of unemployment speaks to the depth of the current recession, it is also an indicator of longer-term challenges facing the state as we struggle with ongoing sharp job losses within manufacturing.
Aside from being a telling measure of the current situation, the high unemployment rate also has implications for the coming recovery. As the unemployment rate continues to climb in the coming months and quarters, it will place additional strain on consumer spending, further dampening the prospects of a strong recovery.
* Total employment in South Carolina is down 4.5% over the last 12 months. Between April 2008 and April 2009, total employment is down by 88,600 jobs. These losses are widespread across most sectors of the state's economy, but continue to be centered in manufacturing, construction, retail trade and leisure and hospitality. As with the unemployment rate, the magnitude of job losses serves as an indicator of the depth of the recession, but also serves as a predictor of further pressure on consumer spending as job and income losses continue to mount.
While some economists and analysts are starting to suggest that the recession may be over, I do not share that view. It does appear that the worst of the recession is behind us, but what does that mean? During the fourth quarter of 2008 and the first quarter of 2009, the U.S. economy was falling off a cliff. But the recession doesn't end until we hit the bottom. A recovery doesn't begin until we start climbing back up. We aren't "recovered" until we are again standing at the top of that cliff. Right now, the economy is still shrinking, but in many ways we're not shrinking as rapidly as we were.
Will the economy hit bottom and begin to recover? Yes, and more specifically I expect the economy to hit bottom at some point during the third quarter of 2009 before we begin to recover during the fourth quarter of 2009. The critical question now is "What will the coming recovery look like?" Right now, I expect the coming recovery to be sluggish - characterized by below average economic growth - perhaps for several years.
What leads to this outlook for a sluggish recovery? We need to recognize some important differences between this recession and previous recessions that will work to define the character of the coming recovery. First and foremost, as we come out of this recession, we will be relying on households to lead the way, but they will be doing so in the face of high and rising unemployment. Further, previous recoveries have been characterized by falling savings rates and rising consumer debt levels; just the opposite is true this time around. These factors suggest that the coming recovery will be accompanied by slower than normal growth of consumer spending.
Previous recoveries have often relied on housing and construction to help drive growth. This time around, we are faced with high inventories and home sales that are still declining. This suggests that we may be years away from substantial growth in terms of residential construction. Similarly, business bankruptcies and closures, coupled with years of rapid development in retail and office space, suggests that there will be ample commercial space available. This will again work to dampen new construction as the economy begins to recover. Finally, U.S. manufacturers are generally operating with a large degree of excess capacity. This suggests that we are some time away from a situation where businesses need to substantially expand capacity. This excess capacity will likely work to dampen business investment during the coming recovery.
A recovery is on its way, but we need to be careful as far as our expectations regarding the strength of that recovery.
For additional information, contact: Don Schunk, research economist, email@example.com, 843-655-0995 or 843-349-2485.