The chart above is an updated version of one that I’ve featured several times before on CD, and helps to graphically capture several important trends in the U.S. economy over the last ten years: real GDP and civilian employment. It generated more than 100 comments when I posted it about a year ago, so I thought it was time for an update. Here’s what the chart shows:
1. Measured by real output (GDP), the U.S. economy has made a complete recovery from the 2007-2009 recession now that real output in Q3 of this year at $13.6 trillion (2005 dollars) was 2.2% (and $290 billion) higher than the $13.32 trillion of real GDP in Q4 2007 when the recession started (blue line in chart).
2. While real output has completely recovered to 2.2% above its pre-recession levels, the current U.S. employment level of 142.4 million jobs in Q3 is still 3.84 million jobs (and 2.62%) below the 2007 peak of 146.27 million jobs (red line in chart), and that translates into the current “jobless recovery.”
3. The recovery of real output to an historically high level that is 2.2% above pre-recession levels with 2.6% fewer employees has also translated into record-level after-tax corporate profits, which are now 30% above pre-recession levels.
4. The recovery of both output and profits to above 2007 levels with 3.84 million fewer workers could explain the sluggish job growth that will probably continue for several more years. If companies can produce more output now than in 2007 with fewer workers and earn record profits, where’s the incentive to hire more workers?
The Great Recession stimulated huge productivity and efficiency gains as companies shed marginal workers and learned how to do “more with less (fewer workers).” Technological advances may have also contributed to the productivity gains. The surge in productivity since the recession started has been significant (see chart below of real GDP per worker) and may have long-lasting effects, e.g. an extended period of time with a jobless rate above 7%. Even with real GDP, real GDP per worker, and corporate profits at all-time historical highs, we can expect sluggish job growth and the “jobless recovery” to continue for the foreseeable future. But unless we start to see sharp declines in real GDP and/or corporate profits, it’s likely that the sub-par economic expansion will continue.