Industry employment and the 1990-91 recession - job losses compared to previous recessions

Monthly Labor Review, July, 1993 by Christopher J. Singleton

The Nation's longest peacetime expansion officially ended in July 1990 as the economy entered its first downturn since the 1981-82 period. Nonfarm employment had peaked a month earlier, in June 1990, and then fell for 10 consecutive months. Nearly 1.5 million jobs--1-1/2 percent of the work force--were lost through April 1991.(1) The labor market subsequently improved in relative terms during mid-1991, as the job losses became smaller and less persistent. Employment finally reached a low point in February 1992, but the job recovery remained fairly modest through the remainder of the year.

Although generally milder than the typical postwar recession, the 1990-91 downturn was exacerbated by several external factors such as the Persian Gulf crisis, the savings and loan collapse, and continued job cutbacks as a result of lower defense spending. Furthermore, a renewed emphasis on efficiency and cost containment prompted firms, particularly large firms, to restructure their work forces. Reflecting the increased competitive environment confronting many companies, this phenomenon has tempered the recovery of lost jobs. Also, healthy growth in labor productivity, to some extent, has mitigated against the need to rapidly expand industry work forces.

This article details the job performance of nonfarm industries during the 1990-91 recession, both as officially delineated and over specific cycles corresponding to their employment downturns and subsequent recoveries. The experiences of industries during the recession also are compared with those of prior recessions. In addition, the effect of the recession on several of the economy' s key markets is examined.

Overview

Total nonfarm employment fell by 1.1 million during the July 1990-March 1991 span, the economy's official recessionary period.(2) (See table 1 .) Total losse s amounted to 1.5 million jobs, as the employment downturn lasted 20 months (June 1990-February 1992). Leading up to the 1990-91 recession and during the actual downturn, the trend in nonfarm employment corresponded closely to the changes in gross domestic product, with growth slowing in 1988 and 1989 before declining during the 1990-91 period. (See chart 1.) However, while the Nation's output rose after the first quarter of 1991, employment failed to grow accordingly. The job losses were not completely recovered until February 1993, 12 months after the low point and 23 months after the official end of the recession.

The 1990-91 recession extended to every major industry group except services and government, with goods-producing industries accounting for 90 percent of the job losses. Manufacturing and construction, as in past recessions, again demonstrated the most weakness, losing 1.0 million jobs between them. (See chart 2.) Within the private service-producing sector, the majority of the cutbacks stemmed from wholesale and retail trade, which together lost 400,000 jobs.

Comparison with prior recessions

The 1990-91 recession was shorter than most of the previous postwar recessions and characterized by proportionately fewer job losses. Officially, this recession lasted 8 months, in contrast to an average duration of 11 months for previous recessions, and employment fell 1.0 percent, significantly less than the average drop of 2.5 percent. (See table 2.) Although the actual downturn in nonfarm payrolls proved more lengthy, amounting to a decline of 1.4 percent, this compares favorably with an average recession-related drop of 2.8 percent for prior downturns.

However, despite the fact that the downturn of the early 1990's was the mildest postwar recession in terms of the percentage of jobs lost, the job market appears to have been much more sluggish, in retrospect, when the periods immediately prior to, and immediately after, the downturn are also considered. For instance, during the 12 months preceding the nonfarm employment peak of June 1990, payrolls grew a very modest 1.6 percent, the second weakest 12month period before a downturn; for the other postwar recessions, employment growth averaged 2.5 percent during comparable time spans. Indeed, the Center for International Business Cycle Research (at Columbia University) determined that the period beginning February 1989 marked the start of a "growth recession"---a period of modest overall growth, below the trend? In fact, the duration of the "growth recession" that preceded the 1990-91 recession was longer than that corresponding to any other postwar recession.

Moreover, the subsequent recovery has proven unusually anemic as well. Employment typically begins rebounding the same month the overall economy does. In the latest recession, however, nonfarm payrolls did not begin a sustained albeit very modest--upturn until 12 months after its official end. The modest job losses were finally recovered 1 year later, but the rebound was much weaker than that of prior recoveries. In short, while the officially designated recession was fairly mild by historical standards and the overall job losses were lighter, the reality of the job market was an extended period of sluggishness.