Jobless recovery or not?

I've been telling anyone who will listen (there aren't too many of them out there) that the economy is going to grow more strongly coming out of this recession than the conventional wisdom holds. My argument is basically that deep recessions are followed by strong recoveries: GDP growth for the year coming out of the 74-75 and 81-82 recessions was in the 5-6 percent range while growth coming out of the 1990-91 and 2001 recessions was in the 1-2 percent range. I think this economy is more like the 74-75 and 81-82 recessions.

There are two things standing in the way of strong recovery: (1) consumer spending is going to be slow for awhile as households deleverage from their excessive debt levels of the 2000s. (2) the economy recovered strongly in earlier recessions because the Fed moved to an expansionary policy, but in the current recession the Fed has already spent its ammunition.

Number (1) is an important factor that I think should shave a percentage point or more off growth. Number (2) turns out not to be true. True, the Fed has used its conventional ammunition already (the fed funds rate is near zero), so it can't be as expansionary on that dimension as it was in 1975 and 1982. But it has been free and easy with unconventional monetary policy. As a result, interest rates that really matter for the economy like the real Baa corporate bond rate have been falling by more leading up to the current recovery than in 1974-75 and 1981-82, and there's room for a continued decline in the next year. And fiscal policy is extraordinarily expansionary this time around. So I conclude that growth is likely to average around 4 percent this time around - not extraordinary, but enough for us to avoid a jobless recovery.

One problem with this story is that there seems to be no support for it from the labor market. Now comes along an analysis in Grant's Interest Rate Observer relayed by Noam Scheiber at the New Republic. Grant and his colleague Dan Gertner say that the behavior of unemployment in this recession looks more like it did following the 74-75 and 81-82 recessions than in the last two "jobless recoveries." The report is not online, but I reconstructed the data. Here's what I find:

Grant and Gertner's story is that in the typical strong recovery, the number of people unemployed for short durations (<5>

I guess the economic story here has to be that as the recession goes on, people who have been unemployed for short periods of time transition into the ranks of people who have been unemployed long term because there aren't enough new job opportunities. So long-term unemployment rises, while new layoffs and the shortage of job opportunities continually replenish the ranks of the short-term unemployed. When the labor market begins to recover, there is still a lot of transition from short-term to long-term, but the ranks of short-term unemployed are no longer replenished - the numbers in those categories start to turn down, eventually bringing overall unemployment with them.

I wish we had more to go on than the tea-leaf readings I've been relying on, but I find this new piece of analysis somewhat encouraging.