A Tale of Two Recessions, or Will the Dead Cat Bounce?

Dead–cat bounce (n): a brief and insignificant recovery (as of stock prices) after a steep decline, etymology, from the facetious notion that even a dead cat would bounce slightly if dropped from a sufficient height. First used 1985.

Source: Merriam Webster Dictionary

Japan is officially in an economic depression. It's economy shrank at a 15% annualized rate in the first quarter, as compared to 6.1% in the US. But, we are told the worst is over. In April, US unemployment rose to 8.9%, having increased by 0.4% month over month for the last 7 months. Economist's projections show unemployment peaking at 10% in Spring 2010. Meaning that the worst is over. But, after having looked at the state level employment numbers since December 2009, it's clear to me that there are really two recessions occurring in the US.

First, a little background.


The current recession began in December 2007, and is expected to last through Spring 2010. In all likelihood, it will last in excess of somewhere around 25-30 months. This will make it over double the length the 10-11 month average of recessions in the post war period. The only other economic downturn that is comparable in terms of length (but not intensity, for the moment)is the Great Depression. Length is is not everything though, and the second interesting aspect of this recession is how the impact has varied across states. The pain has been widespread, but certain states have been cut at deeper than others.

First, if we look at the national unemployment rate since 1999, we can see that the current rise dwarfs the increase in unemployment which occurred at the start of this decade.

The current recession began in December 2007. In that month, the national unemployment rate was 4.9%. In April 2009, it stands at 8.9%. This is a 102% increase. This means that for every 100 people that stood in the unemployment line at the start of the recession, there are now another 102 people in line with them. Some states have suffered much more than others though.

This was how things looked in December 2007.

This is how they looked at the end of March.

Note that there are differences in the scales. Overall unemployment has risen, but the there have been pockets of states that have done relatively well. The first runs north from Texas through the Plains states to Canada. The second surrounds Washington D.C., where Northern Virginia and the Maryland suburbs are relatively well off.

We can isolate the increase in unemployment. By doing this we see the extent to which each state is bearing its portion of the "unemployment burden." What I've done here is taken the total national increase in unemployment (4.67 million), and calculated each state's portion of the increase if it where distributed equally by the size of a state's labor force.

For example, let's take California.

California has 15% of the nation's labor force. So 15% of the 4.67 million increase in unemployment, would be 701,000. So if California is carrying it's share of the nation's unemployment increase it would have
unemployment in California would have risen from 1,078,600 in December 2007, to 1,779,600. The actual current number of unemployed in California?



Now, let's take a look at Texas.

Texas has 9.6% of the nation's labor force. So 9.6% of 4.67 million would be 446,900. If Texas were carrying its share, unemployment in the state would have risen from 507,000 in December 2007 to 953,900 today. The actual current number of unemployed in Texas?


In other words, unemployment in Texas has increased 35% less than it would have if it carried only its "share" of the national burden. If Texas had taken its "share" of unemployment, then the current unemployment rate would be 8%. The actual current rate?


I think that I've gotten the point of this idea of whether a state is taking its share of unemployment across.

So now to a map to show how this plays out across the country.

Again, what sticks out is that there are vast swathes in the Plains states and in the Northeast that are not carrying their "share" of the unemployment burden. Two other areas are carrying more than their fair "share" of the country's unemployment burden. The first is the West Coast and the second is a region that runs from Michigan on down to Florida. The question that we should all be asking is: "Why are these states bearing so much more of the unemployment burden?"

The answer lies in the economic sectors where jobs are being lost.

Falling Sectors

I'm going to get straight to the point. There are only two economic sectors where employment has grown during the recession: Education/Health and Government. All other sectors have seen employment shrinkage since December 2007.

Overall, employment has shrunk by 4.93 million. The table below shows the distribution of this shrinkage.

If we exclude the two rising sectors (Education/Health and Government), we can see that 4 sectors make up over 4/5ths of employment shrinkage: Construction and Mining, Manufacturing, Trade/Transportation and Utilities, and Professional.

Another way to look at it is to use a pie graph to lay out the case.

The structure of employment in the US is being changed.

It really helps if we look at this as if the relative structure of employment had remained the same, and employment shrinkage equally distributed across all economic sectors.

What I've done here is calculate what it would look if employment shrinkage had been spread equally across economic sectors weighting for their percent of employment.

For example, if employment shrinkage had been distributed equally 275,862 construction and mining jobs would have been lost. In reality over a million jobs disappeared in this sector. In contrast, if employment shrinkage had been distributed equally 600,984 education and health jobs would have been lost across the country. In reality this sector gained 487,900 jobs.

Same contrast with manufacturing and government jobs. If employment shrinkage had been distributed equally 467,980 manufacturing jobs would have been lost. In reality over a million jobs disappeared in this sector. In contrast, if employment shrinkage had been distributed equally 758,984 government jobs would have been lost across the country. In reality this sector gained 487,900 jobs.

Will the Dead Cat Bounce?

What's the story here?

The employment situation is actually much worse than it appears. The impact of the recession on unemployment is being moderated by government spending. The problem is that much of the money being spent is being pissed away into sectors that don't need.

The prime example of this is the amount of money being directed towards keeping the financial sector afloat. Even worse, there have been job cuts here. It's just that the top earners who got us into this mess aren't losing their jobs. The financial sector needs to be nationalized.

Rationalization of the sector through the creation of a central government bank that provides the backbone of the financial system would encourage growth. Right now, "taxes" imposed by banks on economic transactions conducted electronically with debit or credit cards take revenue out of other, productive, sectors. This means that small businesses lose sales on non-cash transactions. There is a reason that our Founding Fathers placed the issuing of currency in the public sector. This is because the public sector is able to provide this service more effectively, and at lower cost than private companies.

Maintaining a system for electronic monetary transactions will require largely the same number of bank clerks as now. The main difference will be that the big money positions filled by the Harvard grads with houses in the Hamptons will disappear. The reason that our economy is in a tailspin is that these people have been allowed to eat working people's lunches for far too long.

They shrink the amount of money available to the government to take corrective action in the economy in two ways.

First, by skimming off the productive economy, they crowd out investment in productive sectors. Let's make this simple. The money being reinvested by the financial sector isn't being placed where it creates new jobs. Instead, it's either 1) being spent on consumption, or 2) it's being put into the "funny money" markets, aka derivatives.

Second, these people are among the largest political donors. People don't like to hear this, but Obama got a huge boost when the financial sector guys led by Robert Rubin aligned behind him. The Hamilton Project was these guys propaganda outlet, and they've supplied most of Obama's economic people.

The political agenda of the Wall Street Lobby is to keep taxes (particularly corporate taxes) low and undermining labor and environmental protections. These guys, for the most part, make money at other people's expense.

Both of these two factors I've raised come together to make a long term, government led recovery near impossible.

This is where the dead cat bounce comes in.

Right now, increased employment in sectors where the government is important (Education/Health and direct government employment) is moderating the impact of the recession. The problem is that this isn't sustainable.

First, the government earns revenue by taxing other sectors. So long as those other sectors are falling, the amount of revenue the government can bring will fall too. So the government is left spending more and bringing in less. And the trend accelerates over time. Nationalizing the financial sector, and redirecting the "taxes" collected in transaction fees into the government till would provide a stopgap measure.
But, more must be done.

Something has to be done to refloat the sectors where employment has shrunk the most. If nothing is done, the economy will bounce as it hits rock bottom, because government spending will bring it up from this low level. But over time, that recovery will be undermined as the tax base is eroded. The dead cat, e.g. the economy, will bounce, before it comes back to earth.

Refloating the shrinking sectors means using government money and expertise to direct investment into firms that makes them more competitive and reorienting firms into new markets. For example, the auto industry has likely fallen from a 16 million car per year base to a 9-10 million car base.

This means not only shutting down car assembly plants, but the supplier base. Auto suppliers are already supplementing earnings from supplying parts with a small trade in wind turbine components. If the government steps in to provide the financing for retooling, and to put companies together, then we can refloat employment in these sectors.

For example, instead of mulling a bankruptcy that shuts many assembly lines (and the attached supplier base) down, why not match up GM's industrial capacity with GE's emerging wind turbine business. Match the two, and have the government provide funding for rural electric cooperatives along the lines of what the government did in the 1930s, and you actually create green jobs. Green jobs don't happen on their own. The market doesn't do it on it's own. It takes government direction. This would do wonders to increase employment in the US manufacturing sector.

Second example. Our infrastructure is falling apart. We need to spend money on rebuilding roads, rail lines, and the electric grid. That could put workers back on the job in the construction sector. If the government set up local hiring halls coordinated through skilled trades unions (where available) and community centers (where not), then we could get these guys and gals back to work.

Rebuilding the rail network, and placing a high tax on road transportation of goods where rail is an option would allow us to cut oil imports. Same thing with encouraging better urban planning to make walking or taking the bus or train an option. This would create thousands of new jobs. Another option would be weatherization, where we put these guys to work putting in insulation and new windows in older homes. Cutting heating bills for lower income home owners and renters would put money into the economy that would almost certainly be spent now. That creates and economic stimulus.

All these things are being pursued as part of the stimulus plan, but the question is whether the scale is large enough. Think that we spent over a Trillion dollars to bail out banks that provide around 5% of jobs, while letting the construction and manufacturing sectors, which provide three times that number of jobs, hang out to dry.

By looking at the hard numbers on employment and unemployment produced by the government, we can show that it's employment shrinkage in these sectors that's driving the economic downturn. Turn them around, and you turn the economy around as well. The question is whether there is recognition of the need for aggressive action now, or if the dead cat has to bounce first.



I'm going to crosspost this later tonight

at around 3 EST on Daily Kos.

I'm going to start putting the title EconPop Series before whatever title I use here when I crosspost to Big Orange.

cross post best practices

Always change the title and the first paragraph slightly and yes, adding a link back to your blog on EP in the first part not only brings readers to other posts on EP, it has the dual purpose of changing the post slightly. This helps with SEO. i.e. they punish sites with duplicate content post by post so changing the post when cross posting helps.

Wouldn't it be nice to just focus in on writing and expressing your thoughts and views instead of the rest of this?


would be nice if we could concentrate on writing.

I will have to tweak the intro paragraph.


Jobs, jobs, jobs, jobs, jobs!

Great post middle! One thing on the employment graphs is they use the same colors, but for different unemployment percentage bins....

So, people reading the maps, look at the color code to the right for it is different per map.

On the Stimulus plan and the autos, well, GM is planning on offshore outsourcing 98% of production. We had 22k green jobs created....in India.

So, I wrote about the current Stimulus jobs earlier and frankly I do not see the point if they refuse to tie the money to U.S. citizens, to U.S. workers, to domestic activity.

They will scream protectionism or some absurdity when the point of public expenditure is to generate income for it's own citizens to stimulate a domestic economy...

So, unless we get a major shift I just do not really see what giving outsourcers G.E., IBM, etc. is going to do for the U.S. middle class and auto workers who are really getting the shaft at this point.

Your ideas are common sense, practical, efficient, sane, but how to get Congress or the Obama administration to do something as practical as retooling GM and forming an alliance with G.E. with the added caveat of domestic production AND hiring only from the U.S. workforce?

Seems like next to nil!

Hence, our cat is dead!@ @&*)#&@*)!!!

With GM

there's a real catch coming with the Volt, but it's a issue for all hybrid production.

95% of the raw material for producing rare earth magnets comes from China.

The source of the material is in Western and Northern China.

Remember Magnuequench?

The Indiana firm used to produce the magnets used in hybrid motors, but a Chinese firm bought it an shifted production to China. It's an example of the Chinese being able to consolidate vertically.

US firms are going to be at a disadvantage because these parts are going to have to be imported, at least in the short term. There used to be a source in California, but that was shut down when Chinese sources opened up.

Even if production in California is restarted, there's no domestic permanent magnet industry because we sold all these firms to the Chinese.

I thought it was from Brazil/Bolivia

Lithium and more S. America.

But more to your point that China is simply capturing the entire vertical supply chain and all manufacturing and the United States plain gave it all away in 9 short years is behind belief.

On top of it China holds the U.S. by the short hairs through debt.

Good article

I have to say this was a pretty interesting piece. Another one shot out of the park, my friend. I'm just curious on a couple of things here. First, I agree that that real infrastructure investment needs to be made. That stimulus plan was a joke, in my opinion. The Chinese will spend more on "Shovel-ready" jobs than we will.

Anyways, when you mention "taxes" on debit and credit transactions, what are you referring to? Fees? Interest rates? I won't argue that some folks are paying some crazy rates out there. Usary laws of some sort should be in place. But lenders should be able to charge something, they are taking the risk. Regarding fees and debit cards, I would shop around, that's what I did. Also, if your bank suddenly starts charging fees call them up and complain. If they won't change, then you change banks. Otherwise, if consumers do nothing and agree to open up accounts with the fees made known, then banks have a right to charge.

You mentioned pairing up industrial capacity of GM factories with GE's wind turbine systems. Can every factory GM owned be converted to make wind mills? Last I checked, some factories the costs of conversions are so cost prohibitive that it may not be doable. In fact, this may be an opportunity instead to help entrepreneurs start up manufacturing firms, assuming GE has enough demand.

This country hasn't had a sound industrial policy since I think the Second World War. While I'm not an advocate of government intervention all the time, I also realize that we're not living in some Libertarian's dream. Certain realities dictate rational decisions and action. We really don't have a true free trade system, and our "trading partners" aren't really playing fair. We have to adapt and, if I may be so bold, to counter-attack.

Now all this government "investing" has to come from somewhere. That means either taxes, printing more cash, or borrowing money. Frankly, I would hate to see Uncle Sam borrow more money. Taxes wouldn't be enough, where would you raise it and by how much (and please don't just say "We'll tax the rich" or something that simplistic, I have WAY more respect for you than that)?

Like I said, perhaps we need an industrial policy. What I'm wondering is, why just GE? Personally, I would try an use the carrot route, and introduce incentives for green jobs. Actually, not just green jobs, if manufacturing is our goal, then it should be that period (Green or not). At the end of the day, this (be it wind mills or what have you) can't become a massive government project, some 21st Century WPA or state enterprise. Domestic manufacturing must become a growth industry again, and that means incentives for demand and investment.

My fear with the subsidies is that we would be hauled into some court. Now there is a snowball's chance in hell that we would leave the WTO, so we have to deal with it. Is what you're proposing a way around such an incident?

I know this may sound like herasy on this site, but how about this as an idea, an addendum of sorts. Why not eliminate corporate taxes on new domestic manufacturing enterprises? Zero capital gains on anyone investing in such ventures. It doesn't have to be permanent, it could be for example for revenues for the next decade. The prerequisite being that the product (or to borrow something from the Chinese) a certain percentage of it be made here (I would say north of 70%). You could even have it be a graduated system for the corporate income tax, the more it's made here , the less you pay in taxes.

The government can pump money into this, but eventually you have to make the damn thing economically viable. Do you really want to keep pumping money essentially into General Electric? The taxpayers don't want to subsidize GE, they want to see new jobs in companies earning a profit, which they would like to invest in.

I'm not bashing your proposal, I'm simply saying that having government as the sole investor/subsidizer won't help in the long run. We need more and more start-ups in manufacturing, that want to sell items here. Most small manufacturers that I know don't even bother selling overseas, they focus on markets here. If there is demand for Wind Turbines, then they will sell. Same with other items.

Solar Panels? Why not introduce tax credits (not tax deductions) towards placing them on your home? You mentioned electricity co-ops. Green technology would essentially allow home owners be their own co-op or sell excess juice to a local co-op. If that municipal co-op has extra power, then let it participate in the market place and sell it to earn extra revenue.

UAW/Campaign to Pledge Buy American online

Buy American pledge.

Looks like they are doing a campaign to show just how many Americans want to support US workers and buy an American made car.

Anybody want to show support can click on the link.

But on an analysis score, I wonder just how much does "Made in America" really influence consumers? I know in conversation it's a big deal, from blue collar people to executives but does it really show up in the statistics as a purchase decision factor?

(I think it should but hell, I also know I shop cheap at the store!)

Something to think about

Thanks for the post, RO. Gonna do my best to buy American.

We've gone literally decades where the average non-food tangible product has not been made in this country, that when you say "Made in America" you get a funny look. I remember a friend of mine many years ago saying "wow we made TVs here once?". What has happened is we have lost a heritage. There are generations now, as crazy as this sounds, that are unaware that we used to make radios or televisions or even toys! They know that we made something, and that it was good quality (Though to many younger folks, this doesn't seem to apply to cars..dunno why, considering even "Japanese" cars are made here for the most part).

Indeed, if I may be so bold, I would say that "Made in America" has taken on this almost..well mythical standing. One of those "ooohs" and "ahhs" where the products they have found to be of such good quality that it now carries such premium weight. Of course, this also has to do with the fact that the average consumer hasn't purchased a cheap plastic thingy/toy made in this country in decades. Most of that type of item has always has "Made in China" or "Hencho en Mexico" on it.



no nation without nationalism..

Kudos on the content and research..
the problem is not that a logical, concise case cannot be made for exactly where the causative factors originated in our man-made, corrution induced economic malaise..
everyone from the top down knows that you cannot give up the underpinings of a world leading state, and still maintain the standard of living of that prior state.
the problem is more 95% a function that the common sense version of nationalistic economics is essentially banned from all our mass media,
while the ''Its much better to sell your childrens birthright for chinese plastic flip flops, 2 for a dollar'' version, is available 24 hours a day on every cable channel, and is promoted using false, misleading terminology by the paid lackeys of those global corporations with a vested financial interest, and who also happen to own our mass media.

The old story of "If a tree falls in the forest and no one hears it- did it happen?",
today is the equivalent of -
''if your nation is bought out from under you with your own tax money as a leveraged buyout, and parted out for the benefit of a corrupt elite - if no one is allowed to mention it on the current means of information distribution, did it really happen''
Although the article is great,
the underlying problem is the Goebbels-esque media ownership that is working 24 hours a day to use its ownership of our mass media and their paid propagandists to sell national suicide as ''free'' trade. Until the Media consolidation is broken and destroyed we are unwilling inmates of a gulag that used to be a country.

The Financial Sector

I agree that stimulus is being pissed away by directing it into non-productive sectors, especially the Financial Sector. Why should this sector be 15 Percent of the economy, up from 7 percent a few decades ago? Let the institutions that raped the economy through "innovation" experience a little of Greenspan's "creative destruction." Even Bakunin could be right once in a while and Ayn Rand could be wrong.