Lisa Katz| Crain’s Detroit Blog
The Workforce Intelligence Network for Southeast Michigan (WIN) released its third quarter labor market reports this week. The reports highlight an exciting finding for the region: Employment has reached a level not seen since December 2008.
December 2008 was not an employment peak by any definition, but it is the point right before the 2009-10 recession trough. It has taken four years (2011-14) of slow and steady growth to get here, but the region is on its way to prerecession employment.
Why, though, has it taken this long to get back to prerecession levels? Shouldn’t employment have grown in a more linear manner as the economy rebounded? Not necessarily.
Employment and other economic-health metrics often follow a business cycle. For example, employment tends to start out at an annual low in quarter one (January through March), then grows throughout the rest of the year to peak in quarters three and four (July through September and October through December, respectively), and finally falls again in the subsequent quarter one to what will be the next year’s low.
This cycle occurs in nearly every developed economy. Employment follows business demand as it changes throughout the year. Harvest time, tourism months and the holiday season experience higher employment due to more business activity, while the winter months (in most areas) see employment demand drop because business activity is slower.
But if the business cycle occurs every year in the same manner, how does employment grow over time to move the economy forward? Shouldn’t the business cycle keep overall employment at the same average level each year? In a stagnant economy, the business cycle will produce the same average annual employment each year. But in a growing economy, which also has a typical business cycle, growth happens more slowly over time as the business cycle and increasing economic activity work together.
The graph below will help explain this connection:
In order for the economy to grow and employment to increase over time, economic growth must work with the business cycle. These two things typically happen:
- Each annual employment drop from quarter four to quarter one will be a little bit less than the same drop from previous year’s business cycle, and
- Employment growth during the year will surpass the previous year’s growth
Quarter one can almost be seen as the “jumping off point” for growth during the year. The higher the jumping off point, the more employment can grow in the long run.
From the graph above, which highlights 2010-11 and 2011-12, the business cycle is clear. Over each calendar year, employment grows in a nearly linear manner and then drops suddenly in the next year’s quarter one. But, economic growth also is a factor, and it works hand in hand with the business cycle. Each first quarter drop is just the smallest amount less than the previous year’s first quarter drop, making growth in each subsequent year just a tad bit faster than the previous.
Economic growth can often be slow, especially in a developed economy like that in Southeast Michigan. The time period 2009 through 2014 could be described as a lost six years for the region’s economy, but Southeast Michigan appears to be entering a new era of prosperity, and the data show just how resilient Southeast Michigan’s employers and workers truly are.
To see more data and information on Southeast Michigan’s job market, please see WIN’s third quarter labor market reports at win-semich.org/data-research/quarterly-reports/
This blog post was prepared with research and content from Colby Spencer-Cesaro, director for research, Workforce Intelligence Network.