Tailored Clothes, Typewriters and Buggy Whips

A news headline today from the Associated Press reported that the company that owns the iconic American tailored clothing brands of Hickey Freeman and Hart Schaffner Marx (HMX Acquisiton Corp) is  is filing for Chapter 11 bankruptcy protection.  As reported by the AP:

The labels Hickey Freeman and Hart Schaffner Marx got their start in 1887 in Chicago and have been worn by presidents including Barack Obama, who wore its suits for his inaugural and election nights.  Their original parent company, Hartmarx, filed for bankruptcy in 2009 and was acquired by British company Emerisque Brands and the North American branch of Indian clothing company SKNL.

The tailored clothing industry in America employs slightly more people than the extinct typewriter and buggy whip industries.  Jobs in the manufacture of men’s and boy’s clothing have been either outsourced or replaced by mechanization.  Employment in men’s and boy’s clothing has declined from 459,000 in 1965 to 234,000 in 1990 to 29,000 today.  The US lost 93.7% of the jobs in the manufacture of men’s clothing at a time when total employment in the economy increased by 120%.

The US doesn’t produce (or consume) the same goods as it did a generation ago.  The US economy must continually transform itself, because of competition in a global economy and the mechanization of production, to generate enough economic growth to create jobs.  The changes required to keep up with foreign competitors will be the result of innovation, risk-taking, and investment in human capital.

President Obama was probably correct when he admitted in this week’s debate that some manufacturing jobs are gone from the US for good.  Outsourcing of these jobs makes economic sense if foreign competitors are more efficient and pass on their lower costs to US customers.  However, outsourcing of jobs is harmful for the US economy if it occurs because of stifling taxes and regulatory burdens.

Why This Recession was Different

It has been four years since private sector employment peaked.  Last week’s jobs report was the best we have seen in months and yesterday’s new jobless claims figures were promising.  It’s a good time to take a look back at the last four years and compare our current situation to previous recessions.

Construction projects and durable goods purchases are delayed in a recession which greatly reduces the demand for workers in these sectors.  From the 1970s through 2008 more than 70% of the jobs lost in recessions were in construction and durable goods.

Only one in 7 jobs heading in to the 2008 recession were in construction and durable goods.  Even though many of the jobs most vulnerable to a downturn were either outsourced or replaced by robots over the past few decades we still lost 8.8 million private sector jobs, or 7.6% of total employment, between January 2008 and February 2010.  Most of the jobs lost were in sectors that previously had been immune to recessions.

The graph below compares employment changes in the construction and durable goods manufacturing sectors in five recessions and recoveries.  In the recessions before 2008 employment in these sectors fell by 10% to 15%.  In the 1970s and 1980s employment recovered after one year of decline.  In the 1990 and 2000 recessions employment fell less sharply for almost two years and only a small fraction of the lost jobs were added back during each recovery.  The 2008 downturn combines the worst features of both types of recessions.  Employment fell sharply for two years until 22% of construction and durable goods jobs were lost.  In the two years since the recovery began job gains have been modest.

The next graph compares employment changes in the rest of the private sector.  In the recessions prior to 2008 employment fell by no more than one or two percent.  It is troubling that employment growth has been less vigorous with each ensuing recovery.  The 2008 recession is different because employment outside of construction and durable goods fell by more than 5% and remains 2.5% below the pre-recession peak two years into the recovery.

The depth of the 2008 labor market downturn is surprisingly severe when one considers the small fraction of jobs in construction and durable goods when the recession began.  More than one in five jobs in construction and durable goods have been lost since 2008, more than in any recession since the Great Depression.  Job losses in recessions used to be concentrated in these sectors and employment used to snap back as the demand for construction projects and durable goods recovered.  If the pattern of recent recoveries holds true few of the durable goods manufacturing jobs that were lost will return to the US.

The 2008 recession is unique because 6 of 10 jobs lost were in relatively recession-proof sectors, such as services, trade, and information.   Increases in durable goods orders will likely restore a small fraction of the jobs lost since 2008.  I expect the labor market to recover slowly over the next few years.

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