August 16, 2009

Length of Recent Recessions & Jobless Recoveries

With an end to the recession in sight, the strength of the recovery is the next big topic of discussion. Most analysts expect a tepid rebound, and recent history supports this outlook. The term “jobless recovery” came into usage after the 1990-91 recession to describe the condition where GDP was growing but not fast enough to encourage businesses to hire. Payroll employment languished after that recession ended, failing to rise above even its end-of-recession level for another 14 months. Employment did not surpass its pre-recession peak for another nine months after that. The jobless period lasted even longer following the 2001 recession, with employment failing to rise above its end-of-recession level for 29 months. It was another 10 months after that before employment rose above its pre-recession peak. If recent history is any indication, commercial real estate leasing conditions will be moribund for at least the next year and probably longer, particularly given the risk-averse credit markets. However, employers are running their businesses at very lean levels, having been quick to cut both inventories and payrolls beginning last September when the credit markets nearly shut down. Labor productivity remains unusually strong for a recession, and second quarter corporate profits were surprisingly resilient. This raises the possibility that even a modest increase in demand could prompt employers to resume hiring, which would shorten the jobless recovery and hasten a true labor market recovery – a hopeful outcome for commercial real estate.
Source: U.S. Bureau of Labor Statistics, Grubb & Elllis


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