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By Jason Stipp and Robert Johnson, CFA | 05-08-2013 12:00 PM

What's Holding Employment Back?

It's no secret the job market recovery has been sluggish, but the culprits might surprise you.

Jason Stipp: I’m Jason Stipp for Morningstar. The employment market recovery coming out of the 2008 recession is undoubtedly sluggish, but the reasons might surprise you. Here with me to offer some perspective and insight is Morningstar’s Bob Johnson, our director of economic Analysis.

Bob, thanks for joining me.

Bob Johnson: Great to be here.

Stipp: You took a look at some historical rates of employment growth, and you also took a look at some recent recoveries. Let’s put the current employment growth, which is sluggish for a recovery, into some perspective.

Johnson: Sure. I think a lot of people have this assumption that we are just so far behind in employment growth this recovery, and the whole job machine is broken. But you look at some of the numbers out there right now, and the average, since 1950, employment growth has been 2.1%. That’s a year-over-year growth rate, and it's every year since 1950, and it’s averaged together, and that number is 2.1%. Right now, with the latest employment report, we’re running at 1.9%. So we’re not that far out of range.

Stipp: Also when you look at gross domestic product, there is a relationship between GDP growth and the employment growth that you see. And when looked at that way, it's also within a typical spread.

Johnson: Absolutely. ... if a typical GDP number might be 2.5% or so, and we’re running around 2.0%. Certainly we would expect with it running on the lower end of GDP, then we run on the lower end of employment. The relationships are kind of holding, if you will.

Stipp: To be fair, though, Bob, one of the reasons that people feel the employment market is sluggish is because this recovery has not been as robust as past recoveries in the employment market that we’ve seen after downturns. You looked into some of the reasons why. So how different has this recovery been and what are the factors behind it?

Johnson: Well, the biggest thing is, I’m hiding a little bit behind averages, but in all honesty, we lost 8.7 million jobs in the recession, but we haven't gotten nearly all of them back yet. I mean, retail sales are above what it was at the start. GDP is about where we were at the start of the recession. Employment still is at least a couple of million people short. That’s why people feel bad.

Stipp: What are some of the drivers of it? Because it’s not necessarily what people expect.

Johnson: Yes. I think that’s what’s really fascinating. I went through and looked at the last three recoveries and said how fast did we grow in those recoveries in every job sector out there? And how did we grow this time around? What might you guess would have been the worst-performing sector in terms of employment?

Stipp: Well, manufacturing has, obviously, suffered a lot because of changes that we’ve seen in the manufacturing dynamic here. So you wouldn't expect that manufacturing would be one of the leaders coming out of the recession.

Johnson: And as you kind of guessed, it is indeed one of the best-performing sectors. In fact, the manufacturing sector has outperformed in all three of the recoveries, and not by a little bit. So manufacturing has been one area of surprising strength. It was one area of strong weakness [in the downturn], but it was also one that we've actually had a positive versus the averages.

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