Unemployment Is Likely to Go Higher

Unemployment is approaching 10% and it is likely to go higher.

Source: Carpe Diem

In this chart, based on data from the U.S. Bureau of Labor Statistics, the gray bars indicates times of recession. The blue bars indicate a period of time, after a given recession officially ended, in which unemployment continued to go up. For example, in the early 1990s, unemployment continued moving up for 15 months after the recession ended. The last recession did not seek a peak in unemployment until 19 months after the recession ended.

So, assuming this recession ended in August or September, then unemployment might not peak until the end of 2010 or even early 2011. In other words, even though the news on unemployment is grim, it is not likely to get better soon. The Bureau of Labor Statistics reports on the continuing slump in our economy’s ability to produce jobs [emphasis added]:

The Employment Situation (U.S. Bureau of Labor Statistics, October 2, 2009)

Nonfarm payroll employment continued to decline in September (-263,000), and the unemployment rate (9.8 percent) continued to trend up, the U.S. Bureau of Labor Statistics reported today. The largest job losses were in construction, manufacturing, retail trade, and government.

…Since the start of the recession in December 2007, the number of unemployed persons has increased by 7.6 million to 15.1 million, and the unemployment rate has doubled to 9.8 percent…

…The civilian labor force participation rate declined by 0.3 percentage point in September to 65.2 percent…

Earlier this year, we were told that the economic stimulus plan — the American Recovery & Reinvestment Act of 2009 — was vital to getting job growth back on track. At the time, the administration produced a chart estimating future unemployment with or without the stimulus program.

Source: Innocent Bystanders

The web site Innocent Bystanders has updated the chart to include current unemployment levels, which are considerably higher than the administration’s ‘no stimulus’ worst case scenario. The dots represent recent monthly unemployment percentages from the BLS. We were told that, with economic stimulus unemployment would peak at 8% and would now be trending down. Oops.

I don’t really blame the administration for being wrong. Our economy is so complex that predictions can often go astray. However, I do note that when Congress or other politicians make claims in favor of pending legislation, then considerable skepticism on our part is warranted. The skepticism is warranted because the benefits of legislation often get exaggerated, but the costs get lowballed. Imagine that.

Comments

[aussiereader4:]

Using the blue analogy, In 91 -92 the unemployment in the blue area increased by 35 000 per month, in 2002-03 it climbed by 12000 per month.

Using the same analogy there will be another 3 million on the unemployment queue . It is more likely the recession has not ended.

I think putting in a blue line before GDP is reported is a little presumptuous

Oct 06 05:05 AM

[Carlos Lam:]

"Our economy is so complex that predictions can often go astray."

Which is precisely why central planning--whether it be the Fed's monetary policy or Congress's fiscal policy--often have dire unintended consequences.

Oct 06 06:13 AM

[tripleblack:]

The chart infers that unemployment's curve will stay elevated above the other projections (all of them equally bogus, save for the actual results, of course).

This would mean something like 8+% unemployment even in 2012.

Not a good climate for an incumbent seeking re-election.

As for 2010...

10% +

Ouch.

Oct 06 11:27 AM

[reveigel@ms...:]

Why anyone would think otherwise indicates he or she has no interest in the truth. And the truth is, the current administration is doing all it can to increase unemployment. If you do not believe that then you are not listening to all the programs, either in place, or about to be in place that will do just that. Such as; new health care bill, cap & trade bill, higher tax bill, higher minimum wage bill, value added tax bill, bills restricting energy increases, huge federal debt increases, and this is just a start. And on the 'plus' side for job growth, a few so-called 'green' jobs that are costly and accomplish little. Wake-up Americans and learn the truth.

Oct 06 03:15 PM

[bottoms-up:]

If you'll look at the footnote on the chart:

"Source BLS"

Remember what you learned as a child...

Consider the source. The real unemployment rate is actually 5 to 8 percent higher. It's all in the definition.

Oct 06 06:03 PM

[aarc:]

As far as the stock markets are concerned; unemployment rate and the main indeces INDU and SNP do not jibe well.

Dow Jones simply kept going up from $42 in 1932 deep recession toward $300 in 1939 during the Great Depression years of 1933 to 1939 when unemployment kept on climbing toward 25% in 1939.

When WWII started, unemployment virtually disappeared and there was massive demand for everything and anything but Dow Jones went down anyway from $300 high to $100 low.

When WWII ended and soldiers came home looking for non-existing work; unemployment shot up and Dow Jones shot up too from the $100 low of 1943/44.

From your chart; unemployment rate kept going up toward 1992 but Dow Jones kept going up too. When the unemployment suddenly decreased remarkably after 1992, Dow Jones rally was still anemic. Only after 1995 did Dow Jones went into parabolic rally but the decrease rate of unemployment started to taper off toward year 2000.

Now, during the techwreck years of 2000 to 2002; unemployment kept going up to mid 2003, but Dow Jones was already up and running since Oct of 2002.

Unemployment started creeping up late 2006 but Dow Jones only started creeping down after Oct 2007.

Now at the present stage; unemployment is still spiralling up, yet Dow Jones has already gone ahead with a bouncing rally since March 2009.

What is the value then of analyzing unemployment rate as far as investing and finding the correct time to buy or sell are concerned?

I tend to believe that the recovery can happen without a jobs recovery as happened in the past and may even be counter-trend, or should I say buddy buddy trends, to each other as in 1932 to 1939.

1932 seemed to have basic similarity with late 2008 to early 2009 although they may have different reasons and their intensity of effects have definitely different impacts - they were both deep recession periods when unemployment kept on spiralling up but did not end as the stock markets found their bottoms and started to spiral upwards.

We will know in the months ahead if unemployment rate and the Dow Jones will play buddies as in years 1932 to 1939 both trending UP.

It may not be different this time around.

Oct 07 01:50 AM

[nobby73:]

There has been a huge amount of losses from the middle management which were paying far more than was warranted by their actual productivity. All these people, with college degrees, mortgages and lifestyles that need $100k pa to fund are in a state of denial.

The move to a post-industrial economy created huge numbers of these sorts of jobs, but the truth is they were never more than glorified paper pushers or bodies to sit in pointless internal meetings. They are unwilling and unable to take jobs paying $20 working on an assembly line, but this is where the jobs of the future are going to come, even if in new "cool' sectors. People will learn that education will be less useful than skills in the new economy, or get left behind. Welcome to the new normal.

Oct 07 02:13 AM

[Moon Kil Woong:]

Thanks for highlighting the misinformation that the government produces yet again. We saw it with TARP, then the Bush Tax Rebate stimulus plan (the first stimulus), now under Obama (his claimed first stimulus plan). I really wonder what they will call the next stimulus plan and how they will justify it?

There is little faith or confidence in the market because there is little truth in what we hear everyday. You are right, anyone expecting a job recovery immediately following the end of a recession has not looked at economic fact or is intentionally lying. And yet this is what we have been peddled.

Oct 07 02:27 AM

[bluesky123:]

1999 US civilian jobs = 139million. US population of 273million
2009 US civilian jobs = 140million. US population of305million

Same number of jobs today as 10 years ago except the population grew by 32million

US Census,
Bureau of Labor Statistics Household Survey

America has completely ignored pro active job creation policies for well over a decade. Here's the grim US jobs reality. This country faces a future of a deteriorating social fabric and even less jobs.

Do you want jobs growth, GDP growth, innovation, export growth which will lower the trade deficit, wage growth, innovation, more product development, more R&D, more money for state and federal government to pay down our whopping debt, and a bright future? If this is the future America wants, you have to do absolutely everything possible to support small business. Seed capital, bank lending, tax incentives, R&D incentives etc. Do EVERYTHING POSSIBLE to support small business.

Money poured into the corrupt banks whose recklessness crashed the entire country and the world. Now much needed capital is not flowing to the biggest job creation engine this country has - small business. If America does not make major, major policy changes regarding jobs growth and small business, we're on our way to 20%+ unemployment.

Oct 07 04:24 AM