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Is Unemployment (U3) Headed To 13%?

Reuters:

Gluskin Sheff economist David Rosenberg, formerly of Merrill Lynch, thinks the unemployment rate is going to at least 12 percent, maybe even 13 percent. Optimists, Rosenberg explains, underestimate the incredible damage done to the labor market during this downturn. And even before this downturn, the economy was not generating jobs in huge numbers. [MORE . . .]

Here is what I gleaned from Rosenberg’s latest report (bold is mine):

1. For the first time in at least six decades, private sector employment is negative on a 10-year basis (first turned negative in August). Hence, the changes are not merely cyclical or short-term in nature. Many of the jobs created between the 2001 and 2008 recessions were related either directly or indirectly to the parabolic extension of credit.

2. During this two-year recession, employment has declined a record 8 million. Even in percent terms, this is a record in the post-WWII experience.

3. Looking at the split, there were 11 million full-time jobs lost (usually we see three million in a garden-variety recession), of which three million were shifted into part-time work.

4.There are now a record 9.3 million Americans working part-time because they have no choice. In past recessions, that number rarely got much above six million.

5. The workweek was sliced this cycle from 33.8 hours to a record low 33.0 hours — the labour input equivalent is another 2.4 million jobs lost. So when you count in hours, it’s as if we lost over 10 million jobs this cycle. Remarkable.

6. The number of permanent job losses this cycle (unemployed but not for temporary purposes) increased by a record 6.2 million. In fact, well over half of the total unemployment pool of 15.7 million was generated just in this past recession alone. A record 5.6 million people have been unemployed for at least six months (this number rarely gets above two million in a normal downturn) which is nearly a 36% share of the jobless ranks (again, this rarely gets above 20%). Both the median (18.7 weeks) and average (26.9 weeks) duration of unemployment have risen to all-time highs.

7. The longer it takes for these folks to find employment (and now they can go on the government benefit list for up to two years) the more difficult it is going to be to retrain them in the future when labour demand does begin to pick up.

8. Not only that, but we have a youth unemployment rate now approaching a record 20%. Again, this is going to prove to be very problematic for employers in the future who are going to be looking for skills and experience when the boomers finally do begin to retire.

9. The gap between the U6 and the official U3 rate is at a record 7.3 percentage points. Normally this spread is between 3-4 percentage points and ultimately we will see a reversion to the mean, to some unhappy middle where the U6 may be closer to 15.0-16.0% and the posted jobless rate closer to 12%. This will undoubtedly be a major political issue, especially in the context of a mid-term elections and the GOP starting to gain some electoral ground.

10. But when we do start to see the economic clouds part in a more decisive fashion, what are employers likely to do first? Well, naturally they will begin to boost the workweek and just getting back to pre-recession levels would be the same as hiring more than two million people. Then there are the record number of people who got furloughed into part-time work and again, they total over nine million, and these folks are not counted as unemployed even if they are working considerably fewer days than they were before the credit crunch began.

11. So the business sector has a vast pool of resources to draw from before they start tapping into the ranks of the unemployed or the typical 100,000-125,000 new entrants into the labour force when the economy turns the corner. Hence the unemployment rate is going to very likely be making new highs long after the recession is over — perhaps even years.

12. After all, the recession ended in November 2001 with an unemployment rate at 5.5% and yet the unemployment rate did not peak until June 2003, at 6.3%. The recession ended in March 1991 when the jobless rate was 6.8% and it did not peak until June 1992, at 7.8%. In both cases, the unemployment rate peaked well more than a year after the recession technically ended. The 2001 cycle was a tech capital stock deflation; the 1991 cycle was the Savings & Loan debacle; this past cycle was an asset deflation and credit collapse of epic proportions. And economists think that the unemployment rate is in the process of cresting now? Just remember it is the same consensus community that predicted at the beginning of 2008 that the jobless rate would peak out below 6% this cycle.

Maybe that WPA thing should be revisited.

Speaking for me only

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  • Display: Sort:
    Well (5.00 / 1) (#1)
    by Steve M on Thu Nov 12, 2009 at 11:26:41 AM EST
    obviously no one will be hiring, since Harry Reid just proposed a new tax.  We all know the only two things that motivate employers, ever, are taxes and regulation.  When will the Democrats start to get this?

    Not until they get that (5.00 / 5) (#3)
    by ruffian on Thu Nov 12, 2009 at 11:29:47 AM EST
    the American Dream is to have two or three part time minimum wage jobs.

    Parent
    I just had a Dubya townhall flashback (5.00 / 1) (#4)
    by Militarytracy on Thu Nov 12, 2009 at 11:30:26 AM EST
    I knew you'd get it! (5.00 / 1) (#6)
    by ruffian on Thu Nov 12, 2009 at 11:35:21 AM EST
    We are right on schedule (5.00 / 3) (#2)
    by Militarytracy on Thu Nov 12, 2009 at 11:29:21 AM EST
    if you go by timelines, for the second great depression.

    Thomas Palley

    The financial crisis created an adverse feedback loop in financial markets. Unparalleled deleveraging and the multiplier process have created an adverse feedback loop in the real economy. That is a loop which is far harder to reverse, which is why a second Great Depression remains a real possibility.

    The banking system should have been taken over and all of our stimulus should have gone into job creation.  But that would have gotten in the way of Obamas ambitious agenda we were told and it is not what happened.  I was shocked recently at even Krugman's expressed optimism at different times.  And that is where sitting there reading economic indicators can get in the way of the practical reality of the feedback loop that exists in our economy at this time.

    They should have (5.00 / 1) (#7)
    by Steve M on Thu Nov 12, 2009 at 11:36:13 AM EST
    implemented much stronger measure to ensure that banks would keep credit flowing, instead of just hoping for a magical trickle-down effect.  But the banks are very, very savvy adversaries.

    Parent
    To do that they would have had to take (5.00 / 1) (#9)
    by Militarytracy on Thu Nov 12, 2009 at 11:44:37 AM EST
    the banks over.  The banks were and still are chock full of toxic crap and they must keep large quantities of cash on hand in case the crap comes due.  The only way we could have had freed up credit was for the banks to be taken over.

    Parent
    Reversing the deregulation trend (5.00 / 4) (#11)
    by Cream City on Thu Nov 12, 2009 at 11:47:35 AM EST
    might have done much (and still could do so), well short of taking over the banks.

    Parent
    I still fail to understand how that (5.00 / 1) (#15)
    by Militarytracy on Thu Nov 12, 2009 at 12:11:11 PM EST
    didn't take place :)

    Parent
    Exactly. Seems to me they could have (5.00 / 2) (#23)
    by ruffian on Thu Nov 12, 2009 at 01:24:08 PM EST
    attached many more strings to the bailouts, given that they wanted to stop short of takeover. But as you say, the banks played the game a lot smarter, even to the point of "reluctantly" taking the bailouts.


    Parent
    It would have been interesting if (5.00 / 4) (#19)
    by inclusiveheart on Thu Nov 12, 2009 at 12:44:30 PM EST
    Obama had pulled out a big stick and just gone after the banks in an appropriate manner.  Had he prevailed, his leverage with respect to the private health insurers would likely be much greater now.

    But I never really thought he was keeping his powder dry.  I think his only interest was in protecting the high falutin bankers and their premiere investors.  The rest of us are irrelevant to Obama and his acolytes.  What's most troubling is that I don't think he really understands the economy well enough to figure out that once those elite bankers and investors bankrupt this country, he'll be irrelevant too.  A smart politician keeps government strong but for nothing else than the fact that the breadth of their power is directly related to the strength of government.  The more Obama weakens the American government and limits its power, the more he limits his own power.

    Parent

    The guy had 100 economics advisers (none / 0) (#30)
    by denise on Fri Nov 13, 2009 at 12:31:14 AM EST
    during the campaign. That in itself put me off him. With 100 advisers, how could we know who he was really listening to?

    Parent
    I think Krugman just has to (none / 0) (#5)
    by ruffian on Thu Nov 12, 2009 at 11:31:53 AM EST
    keep himself from being suicidal sometimes, so he throws out some optimism.  I can't blame the guy too much. Overall he is on the right track.

    Parent
    Oh, don't get me wrong (5.00 / 1) (#8)
    by Militarytracy on Thu Nov 12, 2009 at 11:42:55 AM EST
    I love him.  I adore him.  Everything is so effed and he still believes that human beings are essentially at the core kind good beings.  He writes lovely respectful posts to the hopelessly ignorant day after day after day.  This is not a Krugman is stupid post, just a post saying that I have said hmmmmmmmmmm to myself a few times as Paul has tried to adore a green shoot that will have no water cuz we don't got any.

    Parent
    Yes, I got that! (5.00 / 2) (#22)
    by ruffian on Thu Nov 12, 2009 at 01:19:37 PM EST
    I agree 100% Really feel sorry for the guy - it must be hard being right all the time about something so depressing.

    Parent
    I think you're right (none / 0) (#10)
    by Zorba on Thu Nov 12, 2009 at 11:46:26 AM EST
    about Krugman, ruffian.  Certainly, he's not as gloomy as Dr. Doom himself, Nouriel Roubini (although Roubini has been right an awful lot of the time).  Reading Roubini often makes me want to just crawl back in bed, pull the covers over my head, and stay there forever.

    Parent
    Oh rats... (5.00 / 1) (#14)
    by desertswine on Thu Nov 12, 2009 at 11:55:09 AM EST
    and I'm fresh out of tea leaves.

    It's a jungle out there, that's for sure (5.00 / 1) (#18)
    by andgarden on Thu Nov 12, 2009 at 12:32:35 PM EST


    I'll take the Under. (none / 0) (#12)
    by steviez314 on Thu Nov 12, 2009 at 11:50:56 AM EST
    Did you know that in October, the unemployment rate was actually 9.5%, and 80K jobs were added.

    However, since October is usually a strong jobs adding month, the ACTUAL numbers were seasonally adjusted downwards.

    See Floyd Norris in the NYT:

    link

    So you discount (none / 0) (#13)
    by Big Tent Democrat on Thu Nov 12, 2009 at 11:54:28 AM EST
    seasonal adjustments? Really?

    Allrighty then.

    Parent

    We have been in uncharted territory for over one (none / 0) (#16)
    by steviez314 on Thu Nov 12, 2009 at 12:11:17 PM EST
    year now.  Using seasonal adjustments implies that the regular yearly cycle applies as though nothing has changed.

    Why not be aware of both series of statistics, both SA and NSA, to get a better picture?

    I'll still take the under.

    Parent

    Discounting seasonal adjustments (none / 0) (#17)
    by Big Tent Democrat on Thu Nov 12, 2009 at 12:29:18 PM EST
    is ludicrous. It really smacks of denial.

    Parent
    The real, live, breathing non-seasonally (none / 0) (#20)
    by steviez314 on Thu Nov 12, 2009 at 12:46:58 PM EST
    adjusted people who actually got jobs in October would probably disagree with you.

    That it was not as many jobs as are usually created in Octobers past is very unfortunate.

    Don't discount one or the other--be aware of both.  Intellectual incuriousity is rather ludicrous to me.

    Parent

    Ridiculous (none / 0) (#21)
    by Big Tent Democrat on Thu Nov 12, 2009 at 01:15:11 PM EST
    The real live breathing people who did not get jobs that normally exist in October know denial when they see it.

    Here's the thing, you want to dump seasonal adjustments? then do not wait for the month in which it appears to increase U3. Do it when it decreases U3.

    Parent

    According to the BLS, (none / 0) (#25)
    by steviez314 on Thu Nov 12, 2009 at 02:04:23 PM EST
    the NSA non-farm eployment was 132.3 million in January, and 132.0 in October.  The large magnitude actual job loss occured in January.

    Parent
    And the unemployment rate is a percentage (none / 0) (#26)
    by Big Tent Democrat on Thu Nov 12, 2009 at 02:05:29 PM EST
    Come on stevie. You are better than this.

    Parent
    I haven't mentioned the unemployment rate once. (none / 0) (#27)
    by steviez314 on Thu Nov 12, 2009 at 02:15:08 PM EST
    All I'm saying is that the actual number of people employed as been relatively constant for the past months.

    What actually happened was that the unemployment rate should have printed a much larger number in January and February and then only very gradually changed since then.  This also makes intuitive sense, since there really haven't been as many announced layoffs as in Q1.

    Also, note that the unemployment rate will lag the non-farm payrolls number in a recovery, since when people anecdotally hear that things are somewhat better, they will re-enter the workforce and add to the denominator until they can find a job.

    Parent

    You assume (5.00 / 1) (#28)
    by jbindc on Thu Nov 12, 2009 at 03:45:12 PM EST
    That those seasonal employees hold only those single jobs, whereas what is more likely is that many of them are probably on their 2nd or 3rd jobs, so I think it doesn't make sense to think that 80K+ more people are working.

    Parent
    In the first comment in this discussion (none / 0) (#29)
    by Big Tent Democrat on Thu Nov 12, 2009 at 04:49:26 PM EST
    you wrote "Did you know that in October, the unemployment rate was actually 9.5%, and 80K jobs were added."

    Come on Steve.

    Parent

    I'll take the over (none / 0) (#24)
    by ruffian on Thu Nov 12, 2009 at 01:28:03 PM EST
    When I graduated from college in 1979, U3 was at 19% in my hometown, and not hugely better elsewhere. The conditions now remind me of that era, just atmospherically if nothing else - I know what has happened is not the same 30 yrs later.