[A] strong Asian recovery is visible, with output, employment and demand all following V-shaped trajectories, and regional industrial production rapidly bouncing back above the previous peak. Yet this recovery is dismissed by western analysts, who appear unable or unwilling to believe the region is capable of endogenous growth. That 2009 will be the second year in a row in which the increase in Chinese domestic demand exceeds that of the US is a point roundly ignored.(On China, see also The Economist's Free Exchange blog). Another reason is that, he argues, US firms overdid the layoffs:
[F]ew commentators consider the possibility that the large post-Lehman rise in US unemployment was a mistake on the part of panicky managements. Yet this is precisely what trends in labour productivity growth, not to mention common sense, tell us occurred. In the first half of 2008, labour productivity growth averaged 3.3 per cent, while the unemployment rate rose to 5.6 per cent. At that point, there was no evidence US companies were overstaffed. Thereafter, output collapsed, yet business productivity growth remained positive, registering an average yearly pace of over 2 per cent, as companies shed labour at a faster pace than they reduced output. Businesses, like markets, panicked after Lehman went under. Employment and output were both reduced far more than it turned out to be necessary, as businesses temporarily and understandably assumed a worst case scenario.
Just as global output is performing a V-shaped recovery, there is a big risk US employment will do the same, with monthly payrolls showing surprising growth by the end of 2009.
Usually, employment changes less than output during recessions - following a regularity known as Okun's law - which means that labor productivity falls. This recession appears to be breaking that pattern. Brad DeLong recently offered a more pessimistic interpretation (see also Robert Waldmann's response to DeLong).
While the widespread expectation of a 'jobless recovery' is consistent with the slow recoveries from the previous two US recessions in 1990-91 and 2001, Bond also notes that, historically, deeper recessions have been followed by sharper recoveries (a point I also made here). For example, 1983-84 was a particularly strong period of growth, coming out of the deep 1981-82 recession.
His article comes to my attention via Time's "Curious Capitalist" Justin Fox, who writes: "I find that awfully hard to believe, but perhaps that's because I work in an industry struggling with some major secular troubles as well as cyclical ones. In any case, it'd sure be fun if Bond turned out to be right."
Update: Krugman points out that Okun's Law looks better after the latest GDP revision.