Many may still be depressed over the economy for lots of good reasons.
Still, we have had a positive string of green shoots sprouting this spring through fall. The September and October weekly unemployment reports contained positive signs too.
Yes, the bad news of 17% remains with us.
The total measure of the unemployed and underemployed is around 17%. This may be the worst since the Great Depression. And while every administration harps on the need for more college degrees, our nation has never had so many unemployed and underemployed college degreed people as now.
Yet, let's now look at a positive sign.
The fact that new unemployment claims as a percentage of the labor force have been declining is the positive. This is always a good leading economic indicator.
But we now face the new great American economic phenomena known as "Jobless Recovery"
This means unemployment will continue to remain above 9% and yes, even rise to 10% over the next 6 months even as we here news the official recession probable ended this summer. One economic report I read says the economy will improve but unemployment is likely to still be around 8% in 2012 due to our economic situation.
It's not that history must repeat itself - it's that the sands of time have shifted
As a result of are outsourced and imported economy, beginning in 1991 America began experiencing what economist call "Jobless Recovery". In other words unlike the 50's, 60's, 70's and 80's, we saw big spikes in job hiring at the end of recessions, and we no longer see large job creation improvements.
Unlike like those past decades, we now purchase much (maybe most) of what we buy from foreign lands. That's were the most new jobs are being created as we recover. In fact the economic training I and every economist get totally ignores the negative impacts of importing more than you export on jobs and employment. Instead, economists will dwell all day on elementary examples of the benefits of "Comparative Advantage" which like their theory of "The Rational Man" has value but are far to simplistic to exist in a complex world of humans and changing economic tides.
You will be hearing more of this cherry coated term, jobless recovery, in the future.
Economists will dance around the causes of this issue, often claiming more research is needed. Their economic training and tenured ivory tower professor jobs limit their understanding of the real world trade issues.
Economists first called attention to this in the 1990-91 recession when unemployment continued to rise after the "official" recession end. The chart above shows the monthly U.S. Jobless rate back to January 1990 data here, highlighting (in grey) the 1990-1991 and 2001 recessions, and the two periods following the last two recessions that were referred to as the periods of jobless recovery. Following the 1990-1991 recession, the unemployment continued to increase for 15 months until it peaked in June 1992 at 7.8%, and following the 2001 recession, the jobless rate increased for 19 months until June 2003 when it peaked at 6.3%.
Even an optimistic forecast would conclude unemployment remains above 9% over the next 12 months
Assuming that the most recent recession ended in June 2009 (as many economists believe) and we have another jobless recovery of at least 16 months, we can expect unemployment to realistically continue to increase at least through the end of 2010 before it reaches its post-recession peak in the current "jobless recovery." Even an optimistic forecast would conclude unemployment remains above 9% over the next 12 months. So, don't stop taking your anti-depressants.
Let's just hope history doesn't repeat itself. Let's hope the 2009 to 2010 stock market is like the 2003 to 2004 market.
How can this impact the stock market? Well, the most recent example was the 2001-2003 market which climbed for months after the 9/11 attack and final market sell-off which proved to be the end of a much shorter recession. But by March of 2002, after a period of inventory restocking similar to our current experience the market fell for 9 straight months back to its 2001 lows before rebounding again in 2003 when unemployment finally began declining.
Note: The broadest measure of unemployment, which includes all those working part-time for economic reasons as well as workers who have looked for work within the last 12 months, increased to 17% in September. The official unemployment rate (9.8%) excludes part-time workers as well as anyone who has not looked for work in over four weeks.
Mark J. Perry Ph.D. is a professor of economics and finance in the school of management at the Flint campus of the University of Michigan. Here is his analysis of what his chart above is forecasting.
1. The chart above shows the monthly U.S. unemployment rate back to January 1990 (BLS data here), highlighting (in grey) the 1990–1991 and 2001 recessions, and the periods of rising unemployment (in blue) following the last two recessions that were referred to as “jobless recoveries.” After the 1990–1991 recession, unemployment continued to increase for 15 months before it peaked in June 1992 at 7.8 percent; and following the 2001 recession, the jobless rate increased for 19 months until June 2003 when it peaked at 6.3 percent (see blue shaded areas in chart).
Assuming that: a) the most recent recession ended in June 2009, and b) we have another jobless recovery of at least 16 months, we can realistically expect the unemployment rate to continue increasing at least through the end of 2010 before it reaches a “jobless recovery” peak.
2. To understand how long it might take for the NBER to announce that the 2008–2009 recession is officially over, we can also look to the two previous recessions.
The 1990–1991 recession ended in March 1991, but the NBER’s official announcement wasn’t released until December 22, 1992, almost 21 months later. The 2001 recession ended in November of that year, but the official announcement by the NBER didn’t come until July 17, 2003, almost 20 months later.
If the most recent recession ended sometime in the middle of 2009 and if the official “announcement lag” of the last two recessions continues for this one, we probably won’t get the official word from the NBER until February or March of 2011.
