Relatively Low Unemployment Is No Cause for Optimism

Many Wall Street analysts and (mostly right-wing) commentators (see "5 Reasons Why Today is Not Great Depression II" for one example) say we are not headed for a repeat of what took place 80 years ago because the unemployment rate is "only" 6.7 percent, around a quarter of what it was during the Great Depression.

But what they conveniently forget to mention is that national jobless totals only began to spike following the crash year of 1929 and were actually fairly steady up until that point. Unemployment did not hit the widely cited peak (on an annual basis, at least) until three - four years later.

Below is a graph showing the annual unemployment rate for the last four years overlaid on similar data for the period 1926 - 1935. While the future trend for this series might not follow the same trajectory as before, the fact that it hasn't yet hit double-digits is not necessarily a cause for optimism.

(Otherwise, a pessimist might note the fact that data covering the last four years looks somewhat worse than comparable statistics for the period prior to the Great Crash. Perhaps the upside this time around will be greater?)

click to enlarge

Comments

[Steven Hansen:]

Michael, I have noted the same for for gdp. I am not saying we are headed for a depression. but this financial crisis has not played out yet, and it is too early to start forecasting a recovery.

Jan 02 04:59 AM

[mauijeff:]

Your graph is not very hopeful but I am afraid it may show what to expect. I think that things will start hitting home when we see retailers going out of business in the local mall. There will simply be less economic activity and that will lead to more unemployment.

Jan 02 05:18 AM

[otbricki:]

I don't think this analogy holds up given the changes in the economy that have occurred in the last 80 years.

Companies cut jobs far more rapidly than they used to because in a service economy employee costs are a far larger part of their costs. In addition there is not the same social contract between employee and employer that used to exist 80 years ago. Also we have stuff like unemployment insurance now.

Jan 02 12:57 PM

[Bill James:]

If we are allowed to innovate, it is possible to create an average of 1.8 million jobs over the next 12 years building Personal Rapid Transit networks. These are a Physical-Internet, computer networks that move people and cargo with a tenth the energy required of cars.
seekingalpha.com/artic...

Unfortunately, government has not de-monopolized their planning process as was done with AT&T in 1984. To innovate requires a lot more attempts and failures than is allowed within institutionalized thinking. Policy makers need to shift from Plans to Performance Standards. A Performance Standard of 120 passenger-miles per gallon is easily achieved.
www.theoildrum.com/nod...

Jan 02 08:06 PM

[WAKEUP:]

I think Mr. Panzer suspects that we are in round two of a fifteen round bout. I know that is what I strongly suspect. We've barely had enough time to realize that this is a VERY bad situation; it's doubtful that any of the pundits have had enought time to fully assess how bad it really it.

Jan 02 10:35 PM