States struggle to get back to prior peak employment

The advance report on third quarter economic growth (released October 29) was not really bad news. After all, Gross Domestic Product (GDP) was up by 2.0 percent, not on the decline as it would be in a double-dip recession. The problem is that the current pace of output expansion is too weak to stimulate enough job growth to reduce unemployment, put Americans back to work, and blow away some of the clouds hanging over the economy.

The advance report on third quarter economic growth (released October 29) was not really bad news. After all, Gross Domestic Product (GDP) was up by 2.0 percent, not on the decline as it would be in a double-dip recession.

The problem is that the current pace of output expansion is too weak to stimulate enough job growth to reduce unemployment, put Americans back to work, and blow away some of the clouds hanging over the economy.

U.S. needs millions of new jobs for full recovery

Compared to last year at this time (September 2010 vs. September 2009) the national economy has added only 321,000 new jobs. Optimists might point out that at least employment is moving in the right direction. But for the nation, and most states, full recovery — getting back to the employment levels before the recession began — is shaping up as a long, drawn-out struggle.

The national economy is 7,750,000 jobs short of the employment level reached in the prior peak at the end of 2007. Significant hiring in recovery usually takes place after business is convinced that the rebound is sustainable and additions to the work force are warranted.

In the recovery after the recession of 2001, GDP grew by 3.8 percent in 2003 and 3.0 percent in 2004 before job creation exceeded two million in 2005. The current outlook for GDP growth this year is below 3.0 percent and 2011 is not expected to be much stronger. It seems unlikely that the national economy will improve enough to support widespread strong job growth within the next 12-18 months.

Full recovery is in sight for some states

However, two states have already bounced back to prior peak employment levels, albeit temporarily. In July, both North Dakota and Alaska surpassed prior peak employment, but since then seasonally adjusted employment has dipped back down.

Five other states are within three percentage points of full recovery to prior peak employment. The largest of these is Texas. The Lone Star State has a job gap of 278,500 new jobs to fully recover, an increase of 2.6 percent.

For those interested in the percentage job gap challenges facing other states, this figure is easily computed as the difference between the "Percent of Peak" column and 100. For example, current employment in New York is 96.1 percent of the prior peak of 8,828,300 jobs.

Employment must grow by 3.9 percent from the current level to fully recover to that prior peak. At the bottom end of the listing, four states are below 90 percent of prior peak employment. Michigan has lost 15 percent of jobs since the prior peak and therefore has the greatest percentage job gap.

Nevada's percentage loss is similar in size. Arizona and Florida are still 10 percent below the prior peak. All four states are expected to lose jobs in 2010, but Michigan, Arizona and Florida have shown some modest gains in recent months. In September, employment in 30 states was higher than in September of 2009.

But for all 50 states, year over year job growth for the average state was a meager 0.25 percent. Abstracting from the figures for the national economy, employment in the average state needs to increase by 5.6 percent to return to the same number of jobs as in the prior peak.

While labor markets are showing more signs of life in some regions, overall growth can only be described as slow and not adequate to have much of an impact on unemployment or public perception about the health of the economy.