by Calculated Risk on 6/04/2012 06:31:00 PM

Gad Levanon at the Conference Board makes some interesting points: Why is Employment Growth Still Disappointing and When Will it be “Normal” Again?

In a typical recovery, rapid economic growth is driven by pent-up demand for consumer durable goods, housing, and business equipment. Also, in a typical recovery the government moderately adds jobs, and economies outside of the U.S. are enjoying robust growth, which helps boost American exports and raises the revenues of American multinationals. So what’s different this time? There are several combined factors that are dragging down the U.S. economy and labor market:

1) Government spending is shrinking. The hope was that the federal stimulus would create jobs while the private sector was in recession, and that this federal stimulus would eventually wind down while the private sector would pick up. This wind-down has occurred, but the private sector is not generating enough jobs by itself yet. At the same time, state and local governments... have been cutting back for several years now ... In the past year, state and local governments have slowed down their layoffs, but the number of employees in the federal government is still rapidly shrinking -- down by 1.8%. Overall, the public sector has reduced its workforce for three years in a row, cutting a total of about 700,000 workers.

2) The housing market has barely started recovering, and employers in related industries are barely adding jobs. This typically strong driver of growth during expansions is missing in this economy.

3) The global economy is weak. Many countries in Europe are in recession, and the main emerging countries’ economies are significantly slowing down. As a result, U.S. exports and revenues of multinationals and overall consumer and business confidence are suffering.

4) Commodity prices are now at a much higher level than two-to-three years ago. This has caused large price increases in food, energy, and other commodity related products. In the past 2 years, as a result of the price hikes and weakness in housing, the consumption of food, gasoline, public transportation, housing, and utilities have increased by just 0.5% of their annual rate.

Usually housing is an engine of recovery following a recession, but this time, due to the excess supply of vacant homes, housing has lagged the economy.

And usually government hiring contributes moderately to a recovery, but this time we've seen a significant decline in government employment. This decline has been mostly from state and local cutbacks, but the Federal government has been cutting back too.

And of course, as Levanon notes, the global economy is weak with several key countries in recession.

The little bit of good news is housing is finally starting to slowly recover, and perhaps state and local government layoffs might end mid-year. So far GDP growth has been heavily car driven, and that growth might slow - and, of course, the global economy is a drag.

It seems like one or two cylinders of the growth engine are always misfiring. This is why sluggish and choppy growth has been my general forecast for almost 3 years now.