MNI INTERVIEW: US Job Growth Seen Below 2019 Trend for 5-8 Yrs

The rate of U.S. job creation will take between five and eight years to get back to its 2019 trend, former Bureau of Labor Statistics commissioner Erica Groshen told MNI, pointing to historical precedent from previous recessions and to lasting structural changes accelerated by the Covid-19 pandemic.

Pandemic disruption has affected both what consumers buy and where products are made, as well as severing ties between workers and employers, making it more difficult for those laid off to find new work, Groshen, who also worked at the New York Fed, said in an interview, echoing comments from Dallas Fed advisor Aysegul Sahin in a recent MNI interview.

These structural changes will hamper job growth at a time when it is already slowing, she said. The U.S. added just 49,000 jobs in January after monthly gains in the millions through the summer, according to the Bureau of Labor Statistics. The labor market is still down 9.9 million jobs from February.

"We're just barely back up to the worst part of the 2007 recession," Groshen said of the current rate of job growth, adding that it took about five years to return to pre-recession employment levels following the Great Recession. If the Covid-led recession follows a similar path, it will take an additional two to three years to get back on trend.

JOB DISRUPTION

The employment of roughly 13 million Americans is currently being "disrupted" by Covid-19, down from 38 million at the start of the pandemic, Groshen said. These workers have either been laid off temporarily or permanently, are working part time for economic reasons, or have left the labor force altogether.

Although that number has fallen significantly since last spring, further improvement will depend on whether the easing of Covid business restrictions and further government support outweigh recessionary forces.

"You could even see a double-dip recession if the recessionary dynamic took hold in a very strong way," she said. "Without support from policy, I would really fear that."

Groshen said more stimulus is needed to "wake up" the economy, and something like the infrastructure package pitched by the Biden administration is needed to inject more confidence into the economy.

"If we get that in place soon, then that will enter into people's expectations and help to avoid the recessionary spiral," she said. It'll also reel in "precautionary restraint" as people see investments being made in things that will improve productivity and put people back to work.

"If we're going to get this strong recessionary dynamic, if the structural changes coming about from the pandemic are really large, then you're really fighting for the long-term," she added. "Then, countercyclical policy is really important and it's probably going to have to last for a long time."

Washington University professor and St. Louis Federal Reserve research fellow Yongseok Shin also sees a slower final recovery, telling MNI it will take at least three years for the jobless rate to decline under 5%.