Lagging unemployment (Why GDP and unemployment are both expected to rise)

[Kurt_and_Hunter]

There was some discussion here a few days ago about a feature of the Obama administrations baseline projection for 2009-2010. Leaving aside whether they are realistic (cough, cough...), they show a rapid GDP recovery mid-late 2009 but unemployment rising through 2010.

There are a lot of reasons for that effect. For instance, most businesses have not laid off as many people as they could because there's a steep transaction cost to adding and subtracting employees and cutting workers too close will leave you short-handed if things turn around. So there are some employees who are under-utilized an can pick up a lot of slack before new employees are needed.

Another reason (out of dozens or hundreds) is the nature of non-residential construction. A house can be thrown up in weeks or months. A shopping mall or office complex is planned and financed far more in advance and once begun usually has to be finished, even if only to minimize losses.

So non-residential construction continues to rise through the early stages recession, then falls off the table later. It is not unusual for non-residential to bottom after the recession is over. It's a trailing indicator. (residential construction is a leading indicator.)

The biggest hit in the revised Q4-2008 GDP number was non-residential construction which is only now starting to reflect how bad the overall economy is, and will now decline for a while. And non-residential construction is a major employment driver.

Here is a cool chart showing the lagging nature of non-residential:



If it doesn't show (DU doesn't handle image URLs with under-scores in them very well), it's the third chart here:

http://www.calculatedriskblog.com/2009/02/february-economic-summary-in-graphs.html

[backscatter712]

1. The good ol' jobless recovery.

BTW, the chart isn't displaying for me.

[Kurt_and_Hunter]

2. URLs with a "_ " in them often don't show on DU, so I aded a link

[backscatter712]

3. Aha, thanks! n/t