Monday, August 4, 2008

Bush's weak job record

Over the last year, the housing collapse, financial crunch, manufacturing slowdown, and energy and food price spikes have all taken a toll on the economy and contributed to rising joblessness. In its last monthly report, the Department of Labor estimated that unemployment had risen to 5.7 percent, the highest level since 2004. The rate is now only about a half a percent below the peak from the recession earlier this decade.

As the job record is unlikely to improve between now and the end of the Bush presidency, this seems like a good time to review that record.

When President Bush took office in January 2001, the national unemployment rate was 4.2 percent. The tech collapse and bursting stock market bubble produced a mild (by historic standards) recession that resulted in unemployment climbing to as high as 6.3 percent. From the middle of 2003 until early 2007, unemployment fell, reaching a low of 4.4 percent. Since 2007, the rate has climbed again.

Administration apologists point out that the U.S. has suffered through much higher rates of unemployment. For instance, near the end of the recovery in the late 1980s, unemployment was just over 5 percent, and unemployment was much higher during earlier recessions. Nevertheless, an unemployment rate heading up toward 6 percent isn't going to win any economic bragging rights and stands in sharp contrast to the unemployment rates that were achieved during the final two years of the Clinton administration.

Unemployment rates can be hard to interpret because they only count people who report that they are looking for work and exclude other people, such as discouraged workers, from both the numerator and the denominator. A different picture emerges when we simply take the number of people who are working and divide it by the relevant civilian population, that is when we look at the employment-to-population ratio. The graph below shows this ratio for U.S. adults aged 25-54.
The graph shows that the employment rates in the aftermath of the last recession were nearly as low as they had been in the early 1990s. And the recovery in employment never came close to the rates achieved during the second half of the Clinton administration. The Bush record occurred despite an expansionary fiscal policy (deficits every year since 2001) and an accommodating monetary policy (low-to-neutral interest rates). Those tax cuts certainly didn't produce a supply-side employment miracle.

So far, the new economic downturn has been modest in absolute terms; unemployment is 1.3 percent above its last trough, while the employment ratio is less than a percent below its last peak. One reasonable explanation, however, for the strong sense of pessimism right now is that conditions never improved that much during the recovery.

The Bush administration is likely to be remembered for many things. It's doubtful though that job creation will be one of them.