The recent job gains look like the job gains that the U.S. was experiencing during a recession that emerged in a world that looks similar to the world today.
History shows that when inflation is high, job growth is possible at the start of a recession.
A ccording to economist Justin Wolfers, November 2022’s employment statistics mean that “all that talk of recession” is “nonsense. Bollocks. Cow dung.” Wolfers is wrong. The job gains in November 2022 look like the job gains that the U.S. was experiencing during a recession that emerged in a world that looks, in many respects, similar to the world today.
The chart shows the trajectory of employment, the monthly growth in nonfarm payrolls, during the recession that started in December 1973. If any recession arose in circumstances similar to today’s, it is this one. Then, as now, a combination of deficit spending at home and tumult abroad coalesced to produce an economy that saw high rates of inflation and low rates of real output growth.
Firms continued to add employees to their payrolls for the first eight months of that recession. In fact, at 0.17 percent, November 2022’s rate of employment growth is slightly below February 1974’s 0.20 percent and May 1974’s 0.21 percent. Yet the U.S. economy was three months into a recession in February 1974, and six months into a recession in May 1974. Even if this month’s jobs numbers were higher, then, if history is any guide, they would not be incompatible with a United States that was in recession.
High inflation allows job gains and recessions to coexist. If the prices of outputs are rising faster than the prices of inputs, it makes sense to buy more inputs. To businesses, the increases in consumer prices are increases in the prices of outputs. Wages, the cost of labor, are an input cost. With wages growing slower than consumer prices are rising, then, you shouldn’t be surprised that businesses are continuing to expand their payrolls.
Whether the U.S. is now in a recession, as a matter of fact, will be resolved only once a recession has already started. To make that call, the eight people who decide whether the economy is in a recession will rely on data that do not yet exist. For now, though, when it comes to his assumption that November 2022’s job gains signify the absence of recession, Wolfers should not be so quick to dismiss the possibility. In May 1974, six months into a recession, he would have had even better jobs numbers to point to.