Unemployment: Historical Chart Sends Scary Message

No doubt, you’ve probably seen a chart of the unemployment rate recently. And you know about the surprise dip in last month’s unemployment rate.

By the way, that reduction has been roundly dismissed as a statistical mirage because more likely than not, it was caused by people who gave up looking for a job, rather than people actually finding a job.

If you think the level of unemployment is alarming, you’ll find the chart of the average duration of unemployment in weeks downright frightening:

Source: St. Louis Fed

The shaded bars, of course, represent instances and durations of recessions as determined by the NBER.

Since the Department of Labor started collecting data for this statistic in the late 1940’s, we haven’t seen unemployment last this long. The latest data is for July 2009 at 25.1 weeks - in other words, almost 6 months!

No wonder people are giving up looking for work. You would have to have the patience and fortitude of Job to persevere through such a harrowing episode. And remember, this is an average, so there are many who have been unemployed for much longer.

This means that the stock market recovery we’ve seen so far has not only been mostly a profitless, revenue-less one but also it is shaping up to be a jobless recovery. But then again, the stock market is famously supposed to be ahead of economic measures like unemployment.

Take the previous highest peak in the average duration of unemployment: July 1983 at 21.2 weeks. If we travel back in time to those days, it isn’t hard to imagine that we would be equally frightened at this statistic. However, thanks to hindsight we now know that by July 1983 the stock market had already bottomed and gone on to gain an astonishing 70% (for the Standard & Poor’s 500 index). So far, we’re only up about 45% since the March 2009 bottom - if it is indeed the floor.

So while the above chart may send a chill down everyone’s back about the health of the US economy, it doesn’t mean that the stock market is on borrowed time. More importantly, how can anyone look at it and still be worried about inflation?

Despite all the stimulus, the US economy is far, far away from reaching capacity and inciting inflation worries. I guess that is the narrow silver lining to this dark cloud.

Comments

[conceptwizard:]

In september we will add 500.000 graduated college students to the looking for work U6 number.

Aug 12 09:13 PM

[H Nguyen:]

Nothing to be freaking out, brother. All you have to do is learn to surf. Gone with the wind, baby!

Aug 12 09:45 PM

[Mark Bern:]

Interesting article and comments. You know, even with the slack in capacity I still worry about inflation for two reasons.

1) The US economy does not operate in a vacuum as the only large user of commodities anymore. Developing countries (think BRIC) are increasing their use of energy and ore at significant rates. We don't have to show a big increase in demand in the US for commodity prices to increase worldwide anymore. We're not the only game on the planet that matters anymore. And when raw material prices increase the costs usually get passed on to the consumer.

2) As the US piles up more and more debt (think Stimulus, the sequel, to bail out California et al) the value of the $US relative to other currencies is likely to continue to depreciate. How do you expect this to affect dollar denominated commodities? Well, the prices will increase, causing inflation for raw materials. One specific raw material we can all relate to is energy. Oil will go up. Refined petroleum products will go up. We've seen this before. It will not only cost more to fill you car's tank. It will also cost more to cool and heat your home. Energy will affect commercial transportation costs as well which will eventually be passed on to consumers. Sometimes prices go up even with slackened demand in the US because to not pass on the costs would mean going out of business.

And this is the form of inflation that our Fed and Administration are engineering. Not only will we pay higher taxes to finance the debt, but we will also pay more for imported stuff as well. Will our pay increase commensurately? Probably not, especially in a jobless recovery. When supply (unemployed) is high, costs remain low because the employee has no leverage. He/she can easily be replaced in this type of job market.

Sorry to be so gloomy. That is just the way I see this thing playing out. I doubt if the decision-makers Washington have thought this all through and also doubt that they any real concerns about their plans not working to achieve full economic recovery and high employment by next year. Reality is a lot tougher for those of us who actually have to live it.

Aug 12 11:04 PM

[expat in China:]

There is huge inflation out there now!

All commercial real estate companies have been maintaining earning by raising lease rates and misc cost.

cereal has less in the box!

restaurant steak is smaller!

Aug 12 11:48 PM

[perceptions...:]

You would think for many of this years graduate students, there may be a tough christmas awaiting.


On Aug 12 09:13 PM conceptwizard wrote:

> In september we will add 500.000 graduated college students to the
> looking for work U6 number.

Aug 13 08:26 AM

[long_on_oil:]

Basically we have entered a period where unemployment should be declining due to the baby boomers retiring. All the jobs held by the baby boomers that are retiring should be available to the next generation coming up, yet this is not happening like it should.
The debt burden will remain the same because we are simply moving the unemployed from unemployment payments to social security.
Until we get manufacturing back in the United States this downward slope will continue. Making a single product creates several jobs, servicing the product requires only one.

Aug 13 08:37 AM

[TCK:]

I had to quit, or drastically reduce my watching of the financial news. CNBC is the worst, but overall there is mostly cheerleading as opposed to any analysis. Though the talking heads don't really change my outlook, the blather is still quite irritating.

As many people have commented the "reporting" has always been skewed this way. Perhaps I have just come to the realization after the last two bubbles burst ?

Hold the party hats for me this time around !

Aug 13 08:50 AM

[CO2 is OK R...:]

It's interesting how the 60s and 80s were times of increasing employment. Kennedy and Reagan were tax cutters -- maybe somebody should point that out to Obama.

Aug 13 09:27 AM

[TeresaE:]

Claim numbers are in and the pundits are "shocked"!!!

Even though EVERY time we raise minimum wage unemployment rises (shock!).

Even though, EVERY time we have a major holiday/vacation time unemployment claims drop (shock!) as people put off trudging into the office (or the computer) to enjoy what they may perceive as the last hurray.

Shocking! Or not, depending on how close to reality your view is.

I predicted this two weeks ago when all the pundits were calling unemployment as bottoming.

Wonder how the effect of the upcoming mortgage resets with no jobs is going to fare?

I know, these people will magically have the increased income and available bank loans to fix their problems.

They will, just ask a government or Wall Street official.

bwaaahaaahaaa

Aug 13 09:55 AM

[WatchingObs...:]

I would more intersted in the MEDIAN length of unemployment as I believe that would be less skewed by the growing segment that have been/well be out of work for an extended period of time.

Aug 13 10:12 AM

[ERCaptain:]

The assumption I make is based on this very simple premise --
What we reward grows. What we tax shrinks (over simplification with my apologies to the bottom half of the Laffer Curve).

We have been rewarding unemployment. By extending benefits, we have also extended the the period people will use those benefits. Most of the people that I currently know that are on unemployment have not been agressively seeking new employment. In fact, the unemployment numbers going up this spring and summer have meant that many have seen their unemployment checks as a bit of paid vacation. I am not joking about this.

Several of the corporations around where I live have had lay offs. Most of those people have not been diligent to find new employment. To satisfy regulatory requirements they apply for jobs they are not suited for, or fill out applications at places that are not hiring (and they know it). I have had several apply to work for me, and I am not currently hiring. They know it and I know it, but they know I will tell the unemployment office that they came in to look for work. Most have enjoyed their summer and are waiting for things to pick back up with their previous employers.

The flip side of this is that one of the companies that I work with is agressively seeking new employees. I was told just a couple of days ago that quality workers are still not eager to apply -- because if they apply, they will be offered employment. These are quality jobs, with promising potential for growth, with better pay than some of the previous employers. The human resources manager told me that they are eager for things to get into the fall so that the "unemployed" will start applying.

What we reward grows.

Aug 13 11:30 AM

[Rogue:]

The government is paying more and longer unemployment benefits. No suprise here.

Aug 13 11:49 AM

[ERCaptain:]

We have a system that increasingly taxes work and subsidizes nonwork.
Milton Friedman

Aug 13 12:08 PM

[GadflyOnThe...:]

Please do not do a blanket opinion on people that are collecting unemployment. I personally know people who have sent out hundreds of resumes to positions they are fully qualified for; had resume writers and human resources people tell them that their resumes are great; and yet, companies do not respond to their submitted resumes. These people have told me that they would rather be working than collecting unemployment.


On Aug 12 06:34 PM jstratt wrote:

> The length of Unemployment is affected by more than how hard it is
> to find a job. With Unemployment Compensation extended to nearly
> 2 years many more people will decide to avoid work and take free
> money as long as it lasts.
>
> Dont get me wrong I am not advocating letting people starve. I am
> however suggesting that employment is affected by additional pay
> offered. Perhaps some work of any kind would be preferable to collecting
> money for nothing.
>
> On the other hand maybe we are moving as a society to the autoworker
> layoff model.

Aug 13 01:16 PM

[ERCaptain:]

GadflyOnTheWall,
I know that what you are writing is also correct. But, I think what jstratt was referring to was the same thing I have observed. There are MANY MANY people who are taking advantage of what they see as "free money".
As an exception I have a friend that is on his 4th employer in the last 12 months. Previously he had worked for his employer for about 10 years. Each place he would take a new job at, he was caught in their round of new layoffs. However, he is the exception, not the norm that I have also observed.
We are subsidizing nonwork for longer periods of time, thus the period becomes longer because more are taking advantage of the longer periods. It doesn't take too many doing this to increase the mean.

On Aug 13 01:16 PM GadflyOnTheWall wrote:
> Please do not do a blanket opinion on people ...
> These people have told me that they would rather be working than
> collecting unemployment.

Aug 13 02:15 PM

[Suncatcher:]

Really all the chart is saying is that we are getting closer to having Americans doing the jobs that "Americans don't want to do". It seems a long time ago that we heard President Bush utter those words, but a down economic cycle feels a lot longer than an up cycle.

Aug 13 03:21 PM

[whidbey:]

Great note.
The comments are a joy to read, and I think this is why the Coppock Curve is riding the rails and will soon retire to another ignominious defeat - false signal. The curse is here for while and we need to live with it, like it or not. We could recall the Congress for something to do in the meanwhile. I like that.

Aug 13 07:03 PM

[ERCaptain:]

Milton Friedman has been hailed as "the most influential economist of the second half of the 20th century…possibly of all of it".

I laughed to see someone giving a Milton Friedman quote a down vote.

Of course with Paul Krugman, and others of that ilk (i.e., to intellectuals educated to belief in socialism), spouting off new versions of economic history and fictional characterizations of today's events, I should not be surprised.


On Aug 13 12:08 PM ERCaptain wrote:

> We have a system that increasingly taxes work and subsidizes nonwork.
>
> Milton Friedman

Aug 14 10:24 AM

[Northstar10000:]

The graph is misleading If you are a mindless government worker, complete fool, moron or work for Acorn. For all others we see reality.

Aug 15 09:12 AM

[markeetomarket:]

Unemployment benefits saved my family's bacon. It took me 53 weeks to find a decent job. It is not like unemployment is a freebie. I have to pay taxes on it. Also, it is not like I was getting ahead since I only made 50% of my previous salary. I worked hard to find and apply to quality jobs every week as required by the employment security department. I received 2 invitations for an interview (2 out of at least 160 attempts). 92 weeks may seem ridiculous, but you might think otherwise if you were unemployed right now.


On Aug 12 04:19 PM mlonz wrote:

> When You get 92 weeks of unemployment, is it any wonder that people
> stay unemployed longer? 92 Weeks???? That is F@#$ing ridiculous.

Aug 15 02:28 PM