US Growth: 2002-03 analog: muted jobs market alongside resilient growth

Today’s mix of weak labor market data alongside resilient growth and improving liquidity was last seen in 2002-03, when the US economy experienced a “jobless” recovery after the dot com bust. The key takeaway was that the economy continued to recover and eventually created jobs again.

Today retail sales and capital goods new orders have returned to growth after a prolonged period of basing, alongside a very low hiring rate, which was last seen in 2002-03.

Today’s liquidity context is also similar to 2002-03. Our Business Cycle Financing Index, which tracks the breadth of central bank policy easing globally, shows a very synchronized global easing cycle alongside the weak hiring rate. We have also seen a similar surge in global excess liquidity and drawdown in oil prices.

The notable difference between today and 2002-03 is the wider political context, with great power competition with China rather than the off-shoring of US manufacturing jobs. This suggests we may see a quicker recovery in the US jobs market vs 2002-03. US prime-age labor participation rates have already recovered (chart link).