EARLY in his “Macroeconomic Outlook” presentation at the NTEA's Economic Outlook Conference, Ed Nosal showed a slide that pictured a man with both hands over his face, the fingers in his right hand spread to expose an eye warily looking out.
“You can look now … the recovery is officially here.”
Nosal, senior economic advisor at the Federal Reserve Bank, said the National Bureau of Economic Research's Business Cycle Dating Committee determined that a trough in economic activity occurred in November 2001, indicating the end to a recession that began in March 2001.
He said the committee views real Gross Domestic Product as the single best measure of aggregate economic activity. And the real GDP, which sank to less than 0.3% in 2001, was over 4% in two different quarters last year, was expected to top 3% in the second quarter of this year, and is projected to be 3.5% in every quarter through the end of 2004.
Nosal said economists have tended to over-predict inflation in the period since 1995, when in fact the country has been experiencing disinflation — falling inflation.
At the same time, economists have been perplexed that the average monthly nonfarm employment figures have been negative throughout 2003.
“It was a huge surprise,” he said, “because everyone was expecting zero (growth) or a positive number, and we got one of the biggest negative numbers in a long time.”
He said the manufacturing sector has been losing jobs every year since 1998, and the non-manufacturing sector lost jobs in May and June of this year before showing a slight gain in July.
“There's something very weird going on in terms of jobless recovery,” he said. “1990-91 was nothing compared to what's going on.”
He said the unemployment rate has not risen because the labor force participation rate — the number of people who want to work — has declined.
“What's happening in this recession is that people are just leaving the labor market,” he said. “The number of unemployed has increased, yet the labor force has shrunk.”
Overall, he said there is “just a real puzzlement” about what is happening.
“Economic theory would predict that employment should be taking off,” he said. “Productivity is really high. Workers are really productive. What do you (employers) want to do? You want to hire more of them. It turns out we're hiring less.”
He said the committee places particular emphasis on two monthly measures of activity across the entire economy — personal income less transfer payments in real terms, and employment — and also refers to industrial production and the volume of sales of the manufacturing sector and wholesale-retail sectors.
Retail sales are growing at an average annual rate of 3.7% and real personal income is growing at 0.2%, while industrial production is declining 1.3% annually.