Why U.S. Unemployment Will Rise Through 2010 and Beyond

There will be some dips and blips along the way, but the U.S. jobless rate will continue on an overall upward trajectory for much longer than most dare to imagine. Here is why:

1) Despite all the political hype, the “stimulus jobs” are not materializing. This is not surprising because although the U.S. Government excels at creating various make-work projects and programs, doing so takes years—not months. Moreover, as almost everyone expected, the Great White Stimulus Hope has dissipated into various short-duration, pork-barrel projects with no overarching focus, coherence, or any discernible effect. Does anyone think the next stimulus round will be any more effective?

2) The state and local government firing binge is just getting started. With sales, income, and property tax revenues plunging like never before, American states, counties, and cities are gearing up for their first-ever mass layoffs of clerks and bureaucrats, schoolteachers, librarians, dog catchers, and even police and emergency services personnel. State colleges cannot be far behind.

Not even the Great Depression saw it get this bad so early in the game—we are looking at unprecedented grief in a sector employing roughly five percent of the labor force, which has hitherto been almost entirely insulated from the larger economy.

3) Auto-industry layoffs are just warming up. Uncle Sam’s bailout has bought some time, but what about the GM (GMGMQ.PK) and Chrysler factories and hundreds of dealerships already slated for near-term closure, not to mention the collateral damage to hundreds of parts suppliers and other dependant businesses such as catering, security, and building services? The long-expected terminal downsizing of our auto industry has not even begun.

4) Tourism, hospitality, and airline industry downsizing is just around the corner. Go to any vacation spot and you will see half-empty hotels and desperate managers hoping for a turnaround in the economy before they go under. Anything short of a lightning-fast rebound to previous levels of consumer discretionary spending will see many of them close their doors.

On the transportation side, Delta (DAL) has said that it will “reassess staffing needs”, US Airways (LCC) is asking some personnel to take unpaid vacation, and American Airlines’ (UAUA) intention to cut a mere 2.4 percent of its workforce seems a little on the rosy side relative to prior experience. It looks like some serious trimming is just around the corner.

Moreover, how many soon-to-be Pan-Am’s are out there in the airline sector, ready to disappear at any moment? Does anyone believe that this perpetually near-bankrupt industry can avoid mass liquidation in the near future?

5) Precipitous demand destruction in coal, metals, and some other resources is only now leading to mass layoffs in the extractive sector. Coal shipments are already down an astounding ten percent year-on-year and with no sustained manufacturing recovery, will not be rising any time soon. No matter what happens in Washington and on Wall Street over the next few years, our nation will not require nearly as many miners as it did when the hyper-consumption economy was booming and the typical yuppie bought a new car or laid fresh asphalt on his driveway every four or five years.

6) Many SMEs are hanging by a thread. This is one of the biggest underreported stories out there. Not possessing sufficient clout to secure a bailout, handout, or any other form of government cheese, tens of thousands of smaller enterprises employing millions of Americans are deep in the red, running out of cash and credit, and sputtering along on nothing more than momentum and hope. How long can this go on?

7) Last but not least, the optimistic mainstream consensus over the last 18 months has been consistently proven dead-wrong. Whatever the mainstream agrees on at any given time, the opposite has repeatedly proven true. If they are now saying that the employment picture is stabilizing, you can be 100 percent sure that, somewhere at the bottom of the government’s murky statistical soup, it is in fact getting much worse.

Disclosure: no positions relevant to this article.

Comments

[Roger Knights:]

Re #7: "The blundering herd."

"Whenever you find yourself on the side of the majority, it's time to pause and reflect."
– Mark Twain

It’s safe to say that following the real professionals is the way to go. In order to do that, you have to know how they play. There are three points that I stress: 1) there is tremendous pressure and influence to join the crowd and gain easy acceptance, 2) the crowd is wrong in the majority of times, 3) under duress, psychologically, our emotions and objectivity can become distorted and cause us to rationalize (a dominant coping mechanism) or deny (a dominant defensive mechanism) even the basic realities of truth.
--John C. Lee

Jun 24 04:49 AM

[MarkitWacha:]

You missed the increasing cost of energy extraction and the depletion scenarios that are being played out.

There are bright points, but they need time. For instance, see generalfusion.com. This could spell out a boom worldwide, on the scale of 'Christmas turkeys for all'. But, it won't be ready for 36 months at the earliest.

Personally, I think it's time for the Fed to ramp up inflation, so that all are taxed, and so net new saving is at 0 for a time. Reflation is really important for the unemployed.

If you have a bunker, now is the time to stock it.

Jun 24 08:48 AM

[TeresaE:]

Very nicely done.

Reality is pretty ugly and the majority of Americans refuse to believe it.

Our downturn didn't start last year, the real downturn has been running unabated since the doors were thrown open to cheap Chinese manufacturing. This removed tens of thousands of previously thriving small American businesses. Thus removing billions in tax revenue and jobs. We ignored the FACT that the "overpaid" American worker was both the world's best customer/consumer AND taxpayer.

This gutted the true wealth builder in our country and only since free credit and liar loans were yanked, has the fallout materialized.

Couple other things: Why do we continue to import over 1 million legal foreigners a year when we have so many Americans unemployed?

The state & local cuts are just experiencing first round. And the stimulus IS plugging budget holes and allowing current politicians to push the problem onto the next administration's shoulders.

We have been doing this in Michigan for SEVEN YEARS.

Now throw in higher taxes and more costly regulations/registrations and see that not only will state & local be reducing employees in droves, the higher costs pushed onto the private employers will decimate those jobs too.

But, the government always has a plan to massage data. And with hundreds of thousands of people running out of unemployment daily and/or becoming a "discouraged" (thus NOT counted) worker, the released unemployment rate will stay pretty steady.

Reality will bear no resemblance to what the "majority" will tell us it is.

Jun 24 08:55 AM

[TeresaE:]

We aren't actually SAVING a damn thing. With 40 or more per cent of every dollar going to the banks, we are LUCKY to keep our lights on.

We are TRYING to pay off our thieving banks and keep up with the non-reported inflation of necessities (utilities, medicines, paper/cleaning products and food).

You are listening to the kool-aid drinkers.


On Jun 24 08:48 AM MarkitWacha wrote:

> You missed the increasing cost of energy extraction and the depletion
> scenarios that are being played out.
>
> There are bright points, but they need time. For instance, see generalfusion.com.
> This could spell out a boom worldwide, on the scale of 'Christmas
> turkeys for all'. But, it won't be ready for 36 months at the earliest.
>
>
> Personally, I think it's time for the Fed to ramp up inflation, so
> that all are taxed, and so net new saving is at 0 for a time. Reflation
> is really important for the unemployed.
>
> If you have a bunker, now is the time to stock it.

Jun 24 08:57 AM

[Craig W:]

On ". . . why do we continue to import over 1 million legal foreigners a year when we have so many Americans unemployed?"

Because the state run public education system is a disaster (well, what did you expect, it’s run by the state). There is a bounty of jobs available that require competent workers skilled in mathematics, the hard sciences, and engineering. We have dozens of open positions for these kinds of jobs at my firm alone, but they cannot be filled . . . there are not enough qualified workers available.

The average American public school product is ill-prepared and/or does not have the inclination to do that hard work that is required to obtain the needed skills (obviously there are exceptions, but the import of skilled professionals is the proof to my argument). These are the elements of a culture in decline . . . . laziness, entitlement, lack of moral virtue. Additionally, a shockingly high percentage of American workers that are currently in these jobs are 45 and older . . . the great "brain-drain" is about to begin in full force (though as their 401Ks are in the process of getting hammered and they are starting to figure out that they probably won’t see a Social Security check in their lifetime, their retirements may be a bit delayed). Successful businesses that depend on these skilled professionals are well aware of the problem and are competing fiercely to recruit the talent that our universities are producing, but there is not enough. There is no choice but to recruit talent from overseas.

It may not be pretty, but it’s the way it is.


On Jun 24 08:55 AM TeresaE wrote:

> Very nicely done.
>
> Reality is pretty ugly and the majority of Americans refuse to believe
> it.
>
> Our downturn didn't start last year, the real downturn has been running
> unabated since the doors were thrown open to cheap Chinese manufacturing.
> This removed tens of thousands of previously thriving small American
> businesses. Thus removing billions in tax revenue and jobs. We ignored
> the FACT that the "overpaid" American worker was both the world's
> best customer/consumer AND taxpayer.
>
> This gutted the true wealth builder in our country and only since
> free credit and liar loans were yanked, has the fallout materialized.
>
>
> Couple other things: Why do we continue to import over 1 million
> legal foreigners a year when we have so many Americans unemployed?
>
>
> The state & local cuts are just experiencing first round. And
> the stimulus IS plugging budget holes and allowing current politicians
> to push the problem onto the next administration's shoulders.
>
> We have been doing this in Michigan for SEVEN YEARS.
>
> Now throw in higher taxes and more costly regulations/registrations
> and see that not only will state & local be reducing employees
> in droves, the higher costs pushed onto the private employers will
> decimate those jobs too.
>
> But, the government always has a plan to massage data. And with hundreds
> of thousands of people running out of unemployment daily and/or becoming
> a "discouraged" (thus NOT counted) worker, the released unemployment
> rate will stay pretty steady.
>
> Reality will bear no resemblance to what the "majority" will tell
> us it is.

Jun 24 11:01 AM

[awake09:]

The current administration is busy painting the walls of its economic Titanic. Somehow they think that elevating the mood of the masses with erroneous data will result in renewed investment and consumer spending. The majority of this nation is still reliving the Oh-Bah-Mah inauguration over and over in their moist memories, not even caring what is happening to their future. This administration doesn't need to worry about oversight, as its cult members don't want to see or hear anything other than knowing their god is in power. The longer this self-deception goes on, the worse the eventual wake up will be. Will it be in 2009, when the first cracks start to split the cult?

Jun 24 12:51 PM

[Donald Ingram:]

Well written, concise and to the point. Reality hurts.
We have just barely begun this economic journey - 18 months.
Before this trip is finished playing out, years will roll by.
There is much more pain, that will cut much deeper than has occurred so far. The amount of suffering to be visited on America is going to be shocking.

Jun 24 03:28 PM

[Lin:]

Re

TheresaE , Big Jake , awake09 , David ingram All spot on . The masses still watching American Idol + sports are not even remotely aware of what is happening . Sadly , this is what the Illuminatti is counting on .

Jun 24 07:50 PM

[John Bowman:]

I have always been amazed that average middle class Americans can afford $400,000 houses, $30,000 SUVs , all sorts of toys for their kids and fancy vacations.

Living with less is going to be a real blow to many Americans.

Jun 24 10:50 PM

[CLH:]

What negative garbage from Jake as well as the negative comments.

Jun 25 07:27 AM

[Old Trader:]

" Couple other things: Why do we continue to import over 1 million
> legal foreigners a year when we have so many Americans unemployed?"

TheresaE,

The vast majority of legal immigrants are in technical/skilled positions. As to why such jobs aren't offered to US citizens, try an experiment sometime. Go to MacDonald's, and if your check comes to, say $6.72, give the cashier $10.22, and watch chaos ensue. Heaven forbid the cash register losses power!

Jun 28 03:09 AM

[optionsgirl:]

TARP is only half spent. While the federal government continues to floor the gas pedal and spend, it will prolong the agony, rather than allow the system to heal itself. Couple this with new initiatives like cap and trade taxes, and we don't stand a chance; more nails in the coffin...

Jun 28 07:26 AM