Part I: Recovery Began in June 2009
The Economy Has Been Growing, Since Mid-2009
Economic activity as measured by real (inflation-adjusted) gross domestic product (GDP) was contracting sharply when policymakers enacted the financial stabilization bill (TARP) and the American Recovery and Reinvestment Act. The economy has been growing for ten straight quarters, but the pace of recovery has been modest.
Private Payroll Employment Has Been Growing Since Early 2010
The pace of monthly job losses slowed dramatically soon after President Obama and Congress enacted the Recovery Act in February 2009. The trend in job growth in 2010 was obscured by the rapid ramp-up and subsequent decline in government hiring for the 2010 Census (which is now over), but private employers added almost 3.7 million jobs to their payrolls in the last 23 months, an average of about 160,000 jobs a month. Private employers added 257,000 jobs to their payrolls in January, while continuing losses in local government employment, led to a total payroll employment gain of 243,000 jobs.
Part II: The Recession Put the Economy in a Deep Hole
GDP Fell Far Below What the Economy Was Capable of Producing
In the fourth quarter of 2011, the demand for goods and services (actual GDP) was about $895 billion (5.5 percent) less than what the economy was capable of supplying (potential GDP). This large output gap, which is manifested in a high rate of unemployment and substantial idle productive capacity among businesses, is the legacy of the Great Recession. Congressional Budget Office projections show the gap closing slowly over the next several years as actual GDP grows only moderately faster than potential GDP.
GDP grew at a 2.8 percent annual rate in the fourth quarter. A period of growth of 4 percent or better would be needed to propel the economy back toward full employment more rapidly.
(In its January 2012
Budget and Economic Outlook, the Congressional Budget Office introduced new estimates and projections of potential GDP that are lower than the agency’s previous estimates.)
Job Losses Were Unprecedented
Although employers began to add jobs in 2010, the economy has recovered only 3.2 million of the 8.7 million jobs lost between the start of the recession in December 2007 and early 2010. As a result nonfarm payroll employment was 4.0 percent (5.6 million jobs) lower in January 2012 than it was at the start of the recession.
The economy still faces a long and difficult climb out of the jobs hole created by the recent recession. The private sector created, on average, about 160,000 jobs a month in the past 23 months — a pace somewhat faster than population growth. That has contributed to a decline in the unemployment rate, but much faster job growth will be needed to restore normal labor force participation.
The jobs deficit from this recession is much larger than those in previous recessions. The economy would have to create an average of over 230,000 jobs
each month for the next two years just to return to the December 2007 level of employment — and even more to restore full employment, since the population and potential labor force are now larger. Economic growth will have to remain strong in the next few months to see a strong jobs recovery begin.
The Unemployment Rate Rose to Near Its Postwar High...
The unemployment rate rose far higher than in the previous two recessions and far faster than (though not quite as high as) in the deep 1981-82 recession. Technically, the recession that began in December 2007 ended in June 2009 as the economy began growing again, but unemployment remains stubbornly high.
...And Could Stay High for Some Time
Thus far, modest job growth and job creation has kept the unemployment rate high long after the end of the recession. This is similar to what happened in the previous two recessions, and does not resemble the fairly rapid decline that followed the severe 1981-82 recession. Both the Congressional Budget Office and the Federal Reserve warn that unless the pace of economic growth and job creation picks up dramatically, it will be several years before the unemployment rate returns to normal levels.
The Share of the Population with a Job Fell to Levels Not Seen Since the Mid-1980s
The sharp rise in the unemployment rate and the increasingly discouraging prospect of finding a job caused a decline in the percentage of the population in the labor force (those either working or looking for work). As a result of rising unemployment and declining labor force participation, the percentage of the population with a job fell sharply. In January 2012, the labor force participation rate stayed near its lowest level since April 1984 and the percentage of the population with a job remained near lows that were last seen in the 1980s.
Long-Term Unemployment Rose to Historic Highs
During the recession, the share of the labor force unemployed for more than 26 weeks rose higher than at any point in the past six decades (the next highest was 2.6 percent in June 1983). Long-term unemployment remains a significant concern: over two-fifths (42.9 percent) of the 12.8 million people who were unemployed in January 2012 had been looking for work for 27 weeks or longer.
Labor Market Slack Reached a Record High
The Labor Department’s most comprehensive alternative unemployment rate measure — which includes people who want to work but are discouraged from looking and people working part time because they can’t find full-time jobs — recorded its highest reading on record in data that go back to 1994. In January 2012, this rate dropped to 15.1 percent.
The Number of People Looking for Work Swelled Compared with the Number of Job Openings
At one point at the beginning of the recovery there were 7 people looking for work for every job opening. That ratio remains high. In December 2011, 13.1 million workers were unemployed but there were only 3.4 million job openings, or about 4 unemployed workers for every available position — in other words, even if every available job were filled by an unemployed individual, 3 out of 4 unemployed workers would still be unemployed.
Part III: The Great Recession Would Have Been Even Worse without Financial Stabilization and Fiscal Stimulus Policies
GDP Would Have Been Lower Without the Recovery Act...
The Recovery Act was designed to boost the demand for goods and services above what it otherwise would be in order to preserve jobs in the recession and create them in the recovery. The Congressional Budget Office finds that the economy is still benefiting from the Recovery Act, which had its maximum impact in mid-2010; CBO estimates that GDP in the fourth quarter of 2011 was between 0.2 and 1.5 percent larger than it would have been without the Recovery Act.
...And Unemployment Would Have Been Higher
The Congressional Budget Office estimated that because of the Recovery Act, the unemployment rate in the fourth quarter of 2011 was 0.2 to 1.1 percentage points lower than it otherwise would have been and payroll employment was between 0.3 million and 2.0 million jobs greater than it otherwise would have been.
