Unemployment Casts a Long Shadow over Economic Recovery

Count me among those not taking much comfort from Friday’s slightly-less-bad-than-expected US job losses. Looks like a long, hard slog back to economic prosperity.

Felix Salmon at Reuters is right to be concerned about the decline of some 7 million employed people since December 2007, and the 630,000 increase in “marginally attached” people during the last year.

…the absolute levels alone should be more than enough to depress anybody looking for any sign that the US economy is looking remotely healthy.

The OECD provides a disturbing chart in its latest economic assessment, showing that since the start of the recession the unemployment rate in the US has increased more dramatically than in almost all OECD countries and much more sharply than in Japan and other major comparable European economies other than Spain.

Tyler Durden at Zero Hedge points out that the “real” unemployment rate is 16.8% , including “total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.”

In other words, in reality the U.S. labor market is likely about as bad as Spain in terms of undoctored jobless data.

And then there’s this chart of the day comparing job losses during the current economic recession (solid red line) to that of the last recession (dashed gold line) and the average recession from 1950-2006 (dashed blue line).

…the current job market has suffered losses that are more than six times as much as average (20 months after the beginning of a recession). In fact, if this were an average recession/job loss cycle, the number of jobs would have begun to increase five months ago.

Ed Harrison at CreditWritedowns is a bit more optimistic but also offers several negative indicators including this:

The 12-month loss in seasonally-adjusted non-farm payrolls (NFP) is still increasing and is at a business cycle high of 5.8 million.

Bringing this back to the financial markets, Standard & Poor’s finds an increase in the correlation between unemployment and credit card losses: historically, a 100% increase in the unemployment rate suggests about an 82% increase in credit card losses.

During economic downturns like the one we’re currently in, however, this relationship becomes almost one-to-one (96%).

In other words, a 100% increase in the unemployment rate means a 96% increase in credit card losses.

The rolling 12-month percent changes in the unemployment and credit card loss rate levels, which have been far below 60% since 1992, are positively correlated. During the past few months, however, these 12-month percent changes have been around 70%, which suggests a steeper rise in credit card losses as a result of the rising unemployment rate.

One also has to wonder about the impact of underemployment, especially in an economy with a growing number of non traditional jobs, and also how uncertainty over the outcome (or indeed the outcome itself) of health care reform may retard rehiring. Don’t break out the champagne just yet.

(Bonus Weekend listening: for a historical perspective on employment, check out this podcast from The Back Story. If you can handle history professors channeling Click and Clack, this is for you.)

Comments

[RECESSIONPROOF:]

you havnt seen real unemployment yet

Sep 06 02:14 PM

[lookingsouth:]

I agree unemployment is a concern because, over the short term it undermines the overall economy (credit defaults) but I'd much rather live in a country that still allows the market to allocate resources, including labor, than some of the countries on the "high employment" end." of your list. Market allocation of jobs/talent supports economic growth. We're better off taking our lumps up front and adjusting now. Europes preference for job security over growth has created huge liabilities for future generations and that bill is shortly coming due. Didn't the french unionist take some tire factory manager hostage as part of a negotiaton over severance packages? It's mind boggling, really, how Europes labor system functions.

Sep 06 04:42 PM

[Donald Ingram:]

Recap - Well presented charts and written article. Something else that goes hand in glove with these dismal employment/unemployment numbers, is the number of unemployed that have exhausted their unemployment benefits and those that have not qualified for those same benefits. Of the total number of unemployed in the nation (between 7.5 & 16 million) approximately 47.3% are currently receiving benefits. What of the 52.7% that are not receiving any benefits? Taking a conservative approach this is approximately 4 million people. With this number expected to grow exponentially as unemployment benefits are exhausted. This could mean BIG trouble ahead. Maybe those rumours of FEMA camps existing have some basis after all!

Sep 06 05:00 PM

[lookingsouth:]

Better to extend unemployment benefits..be alot cheaper and safer than housing, feeding and guarding camps full of unemployed disgrunteled Americans ...

Sep 06 05:31 PM

[whidbey:]

IF employment matters why not turn to deregulation, job assistance for small employers, export programs for LDCs, and fundamental attention to biotech, computers and software, food production, energy production??

The numbers are god awful, but that is hardly news. What matters is what is done. We need action on jobs now.

Sep 06 07:14 PM

[LKofEnglish:]

unemployment is good news for the greedy not bad. 'oh, so sorry you lost your house today. a tissue?' get real. more reason for the market to soar not less. now if the american people smartened up and decided understood that the game really is rigged and decided to get "change they can believe in" then i'd have hope that this number meant something. to my knowledge, though, the only democratically elected leader to whom full employment ever mattered was adolph hitler. did a pretty good job with that i might add, too just like we could now. funny if you think about it.

Sep 07 12:10 AM

[Moon Kil Woong:]

If unemployment keeps rising over 2 years we really are setting ourselves up for a depression style collapse. Augmenting it with fake government jobs won't really help either even though I'm sure some government solves everything think tank is pondering it (Republican using the military and tax breaks for hiring and Democrats using bigger bureaucracy and eco projects).

The takaway point is: government doesn't solve anything. If we had a regular, but very bad style collapse, good banks would be eating up bad banks from now and the economy would be finding a new equilibrium. The government wouldn't be even more indebt after Bush Jr. basically ruined our economic prosperity. And we might be seeing silver linings by now after a hard rain.

A lingering downturn is the only downturn that turns into a great depression. Our economy is now qualified to become this if we keep undermining trust, squandering money, supporting corrupt and incompetent bankers, and maiming our free market.

Personally, any free market economist should break down crying by now.

Sep 07 01:37 AM

[buoy:]

Unfortunately, some Americans will have to stop griping and find a way to make a living.

Sep 07 09:12 AM

[sbenard:]

Interesting article, and insightful comments. There seems to be a consensus among these comments that this is a fools gold recovery, and that eventually, current fiscal and economic policies will come home to roost, at which time the picture won't be pretty. Count me among that consensus. Bad policy takes time to rear its ugly head.

We are now seeing the emergence of a two-tiered economy. One tier, composed of the super-rich, bailed-out financial cos., mega-corporations, and the politically-connected, are seeing signs of recovery and prosperity. But Main Street and small businesses are continuing to signs of a worsening economy, and they also see coming higher taxes, especially the entrepreneurial class, which is being targeted with the burden to paying for the cost of the new social programs. This will cripple small businesses with higher costs are the worst possible time, when many are struggling to survive. As these higher taxes and new regulatory structures ripple through the economy, this will have terrible consequences for not just businesses, but jobs!

The worst is yet to come, but it will take time to occur!

Sep 07 09:14 AM

[Dollarhane:]

One more caveat which I thought I would touch on is the fact that throughout September, a flood of graduates will be hunting careers. Competition with redundant industry professionals may mean some find themselves contributing towards higher unemployment. 250,000 in the UK and 1.2M in the US may continue to prevent that Thursday jobless claims from becoming healthy.....

Sep 07 09:14 AM

[sbenard:]

By the way -- the "real" unemployment rate referenced in the article and attributed to Tyler Durden at Zero Hedge, is taken from the BLS' own website. It is known as the U-6 figure. It rose .5% this past month!

Sep 07 09:19 AM

[Research Recap:]

Thanks for the good discussion and feedback. Another discouraging statistic for economic resurgence is the continued shortening of the average workweek. Employers generally will expand the workweek before taking on new employees.

Sep 07 12:43 PM

[g452ooo:]

Anyone not well into building stocks of essential supplies will be very sorry in the coming months. Further unemployment will drive more and more desperate people to do desperate things to survive. As more and more states and municipalities become strained to the breaking points, their employees will begin to leave their jobs due to lack of money to pay wages. The police and firefighters will become part of this jobless class. Who is going to protect everyone when essential services begin to cut back?

Your supplies should not only include non-perishable foodstuffs but medical supplies, guns, ammunition, water, batteries, fuels, and the like. It is coming folks, and just a question of when, not if.

Sep 08 03:37 AM

[Mad Hedge F...:]

ouyip. So who was the dummy that waiteduntil August to lay off their workers? Fire the bastard! Apparently,there are a large number of managers out there who don’t readnewspapers, watch TV, or talk to anyone, and waited until the GreatDepression was nearly two years old to cut costs. That is one of manyconclusions I am forced to draw on the news that the August non-farmpayroll showed a further hemorrhage of 216,000 jobs, better than the230,000 consensus, and a big improvement over the 273,000 July figure.But it included downward revisions of 50,000 in June and July, notgood. The unemployment rate came in at 9.7%, continuing its relentlessmarch towards double digits. The net net is that the economy has jumpedoff the top of the Empire State Building, but is now plummeting towards5th Avenue and the meat wagon at a slower rate. The usual culprits werethere; 65,000 jobs lost in construction, 63,000 in manufacturing, and27,000 in finance. What was truly amazing to me was to see losses ineducation at the start of the school season. And what is going tohappen to the 1.5 million who will exhaust their unemployment benefitsby year end? The figures are all proof that there will be no economicrecovery without bank lending. Running a business without credit islike trying to complete a marathon while holding your breath. Bring onthe “L.” My many US Navy readers should seriously consider re-upping,as the economy will not see net hiring for a very long time. Just hopewe don’t invade anyone new.

Sep 08 10:56 AM