U.S. Unemployment - Is It Really So Bad?

Times are tough all over, and that MIGHT just be a good thing.

I have a confession to make: In the summer of 1974, I seldom wore a jacket and tie. It wasn’t so much that I had abandoned all efforts at propriety or decorum. I just had precious few reasons to dress properly.

There were, of course, occasional if somewhat fruitless job interviews. Oh, and one court date. (I assure you, the trespassing charges were dropped when I explained to the judge what I was doing in the middle of that farmer’s field, in the middle of the night, with a jug of cheap red Italian wine, a boy scout flashlight, a fine old driver, and 146 nicked golf balls).

The crux of the issue (both issues, really, when I stop to think about it) was that there was precious little productive work available that summer for a young man near the bottom of society’s great ladder.

Tough Times…

Those were tight times. Total unemployment was hovering around 5.5% and climbing. Not too particularly bad by and of itself, but well on its way to getting far worse (by the following summer, it would peak at 8.8%).

Add in inflation well over 10% back then, and young men like me were getting squeezed from both sides. Simply put, young women in my neck of the woods were only interested in guys with new Camaros, and what with the price of gas quadrupling to an outrageous 55 cents a gallon, and hardly any work about, well, solo rounds of midnight golf were about as good as it was going to get.

click to enlarge

I only bring this up because some moron talking head on cable has just noted that the current job loss rate is on par with those halcyon days. Over the past two months, some 1.1 million Americans – young and old, male and female – have been fired from their jobs. Over the past three months payrolls have fallen at a 5.1% annualized pace.

And Getting Tougher

Nor do we see any signs of this trend breaking. Indeed, some rather reputable thinkers on the subject have posited that the official unemployment rate may hit 9% before truly turning the corner in early 2010.

Now, I know 9% unemployment seems like a truly dreadful figure. Certainly it is enough to stimulate many to contact their congressperson to ask: Just what is going to be done about this travesty?

In most any European capital, mind you, they would call 9% pretty much full employment. And on our own side of the pond, Mexico City would kill to see numbers that low.

But we here in the States are extremely intolerant of unemployment. As I have pointed out in the past, anytime that figure exceeds 7% or dips below 4%, we fire the party in control of the White House.

But Is That Really the Problem?

You see, we have an economy primarily driven by borrowing and spending. And realistically speaking, an additional 5% of folks cutting spending in half due to joblessness (hey, even the unemployed have to eat, right?) is not really enough to scuttle that economy.

The problem is that when we are losing jobs at such a ferocious rate, the 91% of us who remain gainfully employed (and even sometimes over-employed, covering the work all those deadbeats abandoned) tend to cut back on both borrowing and spending.

And so amidst all this craziness, we see the oddest things, like government officials bemoaning the fact that Americans have increased their savings rate to a whopping 3.6% after taxes.

Those dastardly villains! Don’t they know that it’s their patriotic duty to run up their credit cards buying cheap lead-covered Chinese toys!

The Wrong Decade…

As tempting as it is to compare the current situation to those fine days of big hair, wide ties, ridiculous bell bottoms and “Whip Inflation Now” buttons, it may just be possible that we are off the mark (or at least the era) with that idea.

You see, from a regular working stiff’s point of view, a job is a benefit. A pretty darn essential benefit – kind of like air, food or water – but certainly something one tends to tot up on the plus side of the ledger.

But from an employer’s point of view, labor is a cost much like most any other cost – like raw goods, building rent, lights and power, for example.

And right about now, most all of those costs are down.

And the Wrong Conclusion

So all we really need to do is get that 91% to feel a little better about things, and loosen their grip on the purse a tad, and maybe we can get this ball rolling again.

Here’s a thought that might help them relax: We have actually seen unemployment this high before, and in relatively recent memory to boot. It was in the fall of 1982 and winter of 1983. During those cold, cold months, one out every 10 adults was sitting at home collecting a state check.

Guess what was about to happen to the rest of the country? Over the next 18 months or so, the companies of the Dow Jones Industrial Average took advantage of reduced overhead to rise without pause, nearly doubling in value.

The Best Sort of Bad News?

Over the next 17 years we would certainly see a scare or two, but trend-wise, the market never looked back. By January 2000, the Dow had added some 11,000 points for a gain of 1,400%.

To be clear, I don’t wish to be some kind of contrarian Pollyanna who sees bright silver in every single cloud, or an automatic buying opportunity in every downturn. Sometimes a cigar is just a cigar, as Freud was wont to say.

I’m just saying that we don’t know yet how this will break. For now, I remain primarily bearish because the trend in play right now is bearish. That’s just simple practicality. But it is still a bit early to describe our times in biblical “end-of-days” terms.

Just keep your shoes tied, loose folks, and be prepared to move when the time comes.

Disclosure: no positions

Comments

[The Good Ne...:]

Adam,

A great article. I too remember the days of 1974. The herd mentality to the negative was alive and well. The end was near!
mast-economy.blogspot....

I didn't own a jacket in 74, but I do remember the long gas lines and getting to the front of the line only to find that pump was done.

I'll keep my shoes tied loose, enjoy a good cigar, and a round of midnight golf. It doesn't get much better than that.

Feb 10 09:13 AM

[kelm:]

Very nicely done! Gideon Rachman writing a few weeks ago in the Financial Times noted that our post war generation, in the US and Europe had really never known hard times. We have been pinched and squeezed at times but not really known 1930's hard. We in the US and in Britain have had it especially easy and that means our reaction to rising unemployment is more alarmist than elsewhere as you note. Unfortunately that also means the public's response may be much more severe when the rate hits 9 or 10%. Also remember that how the rate is computed has changed since the 70's. It is generally assumed to be far more flattering of the real situation today.

Feb 10 10:39 AM

[Fred Voetsch:]

"Over the next 17 years we would certainly see a scare or two, but trend-wise, the market never looked back. By January 2000, the Dow had added some 11,000 points for a gain of 1,400%"

And the reason was that we had a demographic situation with baby boomers entering their peak earnings years and now we have a baby boomer generation that is past those years and is rapidly becoming a drag on our economy.

This article is plain foolishness that igmores FACTS.

The other fact is that the stock market rose at a rate far above the historic average and is still overpriced. Read this excellent article for more on this topic: www.generationaldynami...

Feb 10 01:10 PM

[momomiester:]

Your assuming that unemployment number is factual just like we had no inflation at the beginning of 08. Some numbers show the actual rate much higher so you have to put it all in context. Also, back in the seventies we were not losing our major financial instituitions or had as much consumer debt.

Feb 10 02:08 PM

[M-P:]

Per other comments, the demographic wave was quite strong over the period ... doesn't stand on all fours in the compare. I do think it's wise to have a more holistic context - worldwide, the tiers of employement are different - good in one region is bad in another.

The issue of whether an employee is a cost or investment isn't as clear. In certain roles - consulting and sales, e.g., - it's pretty easy to put a margin on each head ... some are positive and others are negative using a full loaded cost. Many companies can cut certain heads and not have the top line blink. However, the intangible ramifications of rank and yank can lower productivity for those remaining.

Feb 10 03:56 PM

[aardvark:]

You're forgetting a few things. Banks weren't up to their behinds in funny paper. Standard and Poors was independent and ratings weren't skewed to produce derivative funny money. The personal debt levels weren't nearly as high. International competition meant primarily Japan. The trade balance was positive. National debt wasn't disguised by loans from China.

Feb 11 01:52 AM

[lefty37:]

We're not going to return to national profitablity and produce income for the American wage earner until we return to actually producing something.
Not just services and technology.
STOP outsoucing. Move manufactoring back home. And support American made products FIRST! Did you know that Hershey recently built a new plant in Mexico and laid off 2000 American employees? How does that fix our economy?

Feb 11 07:26 AM

[milkchaser:]

Instead of bashing Hershey, let's drop tariffs on imported sugar. There are more jobs lost because Mexico can import cheap sugar than because the labor there is cheaper. There are many more sugar consuming jobs than sugar producing jobs, yet we protect producers at the cost of jobs.

And there's nothing wrong with making money via services vs. manufacturing. The key characteristic is whether the employee adds high value or not. A physician is a service job, but she provides high value when she delivers a baby (for example). Wage and benefit declines are primarily the result of a person's labor value not being competitive compared to others willing and able to do the job.

There is really no way to successfully protect against global competition. And as a compassionate person, one can hardly begrudge a poor foreign worker from earning his bread at what he considers a decent wage. Protectionism is cruel and xenophobic. And as emerging markets emerge, their workers comprise an expanding market for US goods and services.

Feb 11 08:27 PM

[milkchaser:]

Excellent article. How old was Obama the last time unemployment was higher than it now is? He was not yet in the job market, I expect. Still an undergraduate, safely cloistered at Columbia, I expect. Young people lack a true perspective. Even so, one can imagine the pain that 20% unemployment must have brought to Americans in the 1930s. It should be easy enough to imagine that and not whine so bitterly about current suffering. And even more important, it should instruct us not to repeat the mistakes of Hoover and FDR -- which it looks damn sure we fixing to do.

Feb 11 08:34 PM