Will Unemployment Reach 8%?

Every single day we have more reason to believe that the US unemployment rate will break 8 percent next year. Jobless claims rose to a 16 year high last week of 542k, driving the US dollar lower against the Japanese Yen. Continuing claims rose to 4.012 million, the highest level in close to 26 years.

The most powerful aspect of Thursday’s report is the fact that the Veteran’s Day Holiday usually pushes jobless claims down which suggests that if there wasn’t a holiday, jobless claims could easily surpass 550k.

There is no question that the US labor market is in trouble and non-farm payrolls will continue to drop. However, with major layoffs from companies like Citigroup (C), there is a decent chance that we may see non-farm payrolls double dip like it has in past recessions. In analyzing non-farm payrolls data during the last 3 recessions, we see that at the beginning of an official recession, as defined by the National Bureau of Economic Research, non-farm payrolls start to decline rapidly. However after falling between 200k and 300k, job cuts stall and then pick up once again. We saw this trend in the 1981 to 1982 recession, the 1990 to 1991 recession and during the 2001 recession.

Therefore don’t expect the labor market to stabilize anytime soon - non-farm payrolls should top -300k, stabilize and then revisit that level once again in the first half of 2009.

1990-1991 and 1981-1982 NFP Charts

ZIRP? Recession Trades

For the Federal Reserve, this is yet another piece of growing evidence that the US economy is deteriorating and they may need to serious consider taking interest rates to zero. Oil prices dropped below $50 a barrel Thursday for the first time since May 2005. With inflation pressures easing and the economy deteriorating, there is no reason to stop easing. For the currency market, repatriation and risk aversion should continue to lift the US dollar and Japanese Yen. My favorite recession trades of short USD/JPY and short EUR/JPY are moving nicely in my direction!

Comments

[vbierschwale:]

Unemployment is already well beyond 8 %

I can't prove it yet, but I'm working on it.

The more people that write me, the more that I'm convinced we're up in the mid teens and closing on 20%.

Virgil
www.KeepAmericaAtWork....

2008 Nov 20 10:46 AM

[Robert Nabloid:]

I'm with vbierschwale on this one.

Unemployment is already much higher than stated. I don't trust (or believe) in the government statistics regarding unemployment - They only list those people they think are looking for work... It doesn't take long to be taken off the list of unemployed while still remaining unemployed!

2008 Nov 20 03:00 PM

[notsosmart:]

if you double the govt figure you are closer to the truth.i dont understand all the authors on this site that believe govt. figures.here in fairfield county,ct. we just unseated our congressman who a few weeks before the election said"our economy is basically sound,everybody knows that".why are so many people in denial?well, he is now with the unemployed.you would think that the authors who write on this & other sites could think for themselves.i guess not. so be wary as all have an agenda or are not good anal sts.

2008 Nov 21 10:33 AM

[Ageless:]

It will reach 8% if we're lucky.

I am willing to back up a bet that it is much closer to 10-12% right now, today!

2008 Nov 21 12:27 PM

[Lin:]

We are already at 12 % or more as all the ' self employed ' folks don't count with present government stats which are pure unmitigated BS . If you don't think we are headed for depression , have you seen the many tent cities ? charities are sreaming for donations + are saying copious amts of folks / children in US are now going hungry .True unemployment is going to 15 % or higher . These so called green + infrastructure jobs will not replace

2008 Nov 23 10:34 PM

[Lin:]

con't from above . will not replace the copious amt of jobs lost past 2-3 decades . these are not coming back .

2008 Nov 23 10:35 PM