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DRJ's Blog

October 7, 2012

Our friend Jim Pethokoukis offered another interesting examination of the Washington Post's Chris Cillizza's take on similarities between Ronald Reagan's and Barack Obama's recoveries. I offer it for your consideration with link to Jim's website:

Actually, I find this analysis remarkable —  remarkably incomplete:

As should be obvious to everyone now, the current 7.8% unemployment terribly distorts the state of the U.S. labor market. The only reason the rate has fallen so quickly the past year — from 9.0% in September 2011 — is because of a continuing collapse in the labor force participation (LFP) rate.

When President Obama took office, the LFP was 65.7% vs. 63.6% last month. If the LFP had just stayed steady all year, the unemployment rate would still be in the mid 8% range. Indeed, over the past year, 1.1 million discouraged Americans have disappeared from the U.S. labor force.

When the unemployment rate fell sharply under Reagan over the same period — from 9.2% in September 1983 to 7.3% in September 1984 — the LFP rose to 64.1% from 63.5%. Optimistic Americans were pouring into the job market — and finding jobs! The economy was booming.

The decline in the unemployment rate under Reagan was a sign of underlying economic strength. Under Obama, the decline in the unemployment rate is a sign of underlying economic weakness. 

As I said earlier today:

Look at it this way: Back in June 1983, the economy added about 900,000 jobs, according to that same household survey. During the second quarter of 1983, the quarter that month falls in, the economy grew at an astronomical 9.3% annual rate. The supply-side Reagan Boom was in full swing.

Right now, in the third quarter of 2012, economists think the economy is growing at an an anemic 1.5% or so. So the economy was growing six times as fast in 1983 when it was adding that many jobs.

 

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In fact, based on both the labor force participation rate and the employment-population ratio — simply the share of Americans working — there has been no healing of this labor market since the end of the Great Recession.

 

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3. One other point: During the Reagan recovery, the U.S. labor market regained all the jobs lost during the 1981-82 recession in just 12 months.

During the more than 3-year Obama recovery, we have recovered only a bit more half of the jobs lost during the Long Recession, 4.3 million out of 8.8 million.

In 2012, employment growth has averaged 146,000 per month. At that pace, we won’t close the jobs gap – the number of jobs that the U.S. economy needs to create in order to return to pre-recession employment levels while also absorbing the people who enter the labor force each month — until after 2025.

 

November 2 & 3, in Houston is our next, perhaps most important Invest Like a Monster event. Get prepared for  the election & the next four years with prudent option strategies taught by the best in the industry. Click this link or the picture to register today!

 

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