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In his State of the Union speech last month, President Barack Obama said, "Two years after the worst recession most of us have ever known, the stock market has come roaring back. Corporate profits are up. The economy is growing again. But we have never measured progress by these yardsticks alone. We measure progress by the success of our people. By the jobs they can find and the quality of life those jobs offer."
If that's the case, woe is us. The stock market is now back to where it was in early 2007, yet unemployment is double the rate of back then. Jobs are, in many ways, the lone missing link from a recovery that's otherwise been strong and broad.
When will the job famine end? Like all forecasting, the honest answer is: Who knows?
History, however, tends to be a good guide. And its message is clear: Good chance it'll be awhile before employment is back to normal.
The unemployment rate has averaged about 5.5% since 1950. Once recessions officially end, here's how long it's taken in the past to recover below that average:
Peak Unemployment Rate
Months After Recession Ended Before Unemployment Fell Below 5.5%
|2007-2009||10.6%||19 and counting ...|
Source: Bureau of Labor Statistics. *Technically two recessions separated by a few months. For simplicity, I'm counting them as one.
A couple things should stick out. One is that it's perfectly common for it to take several years after recessions before employment fully heals itself. Two: The deeper the unemployment, the longer the recovery. Our recent recession brought about the second deepest unemployment of post-World War II recessions, which should tell you something about what we're in for.
There are other, more specific, reasons to believe jobs will be agonizingly slow to return. I want to mention two that don't get discussed enough.
The first is housing -- housing starts, or new construction, to be specific. Housing starts are exceptionally low right now, last year averaging one-third of what they did 50 years ago. You can thank too much construction last decade for this. More importantly, you can expect the slump to continue. There are still too many unsold homes out there.
The result of all this is, of course, an evaporation of construction jobs. And despite construction jobs being a relatively small part of the overall job market -- making up about 5% of the total -- the amount of jobs lost from their cyclicality is enough that the overall job market has trouble doing well when housing starts are depressed.
This chart from the blog Calculated Risk sums it up. Bottom line: Low unemployment and low housing starts almost never occur at the same time. If housing starts are going to remain low for the time being, count on unemployment staying high. It's just how it works.
The next barrier is innovation. Obama also mentioned this during the State of the Union. "The first step in winning the future is encouraging American innovation," he said.
And he's right. The majority of new jobs don't come from small businesses, as is often repeated. They come from new businesses, and new businesses are born out of innovation.
The problem is how gummed up the American innovation machine is. Consider the U.S. Patent and Trademark Office's backlog of some 1.2 million pending applications.
"Hundreds of thousands of groundbreaking innovations ... are sitting on the shelf literally waiting to be examined," USPTO Director David Kappos said. "Jobs not being created, lifesaving drugs not going to the marketplace, companies not being funded, businesses not being formed."
The magazine Inc. detailed how desperate -- and dangerous -- the situation has become. In 2009, "in an effort to catch up with its paperwork, the agency rejected applications at an unprecedented 60 percent rate, including many that were later proved worthy of a patent."
Hard to expect job growth from innovation when it's that difficult to get permission to innovate. If we're looking for effective jobs stimulus, forget one-time tax rebates or Cash for Clunkers. Help the Patent Office do whatever it needs to do to get its act together.
The economy's moving in the right direction. Things are getting better. They really are. Just keep it all in perspective. Both history and the details of our current situation point to the possibility of it taking years for jobs to return to normal levels. It's happened before. It'll happen again. And it's probably happening now.
Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.