Update on Unemployment and Recovery

Here is an update of Figure 7 from my NBER working paper.

Of particular interest is the fact that the labor market distortion shows no signs of getting better in Q3. Until that happens, employment could continue down while real GDP rises.

Click to enlarge:

Comments

[Dave Wrixon:]

If you think Government published figures on GDP have any bearing on the underlying strength of the economy then you are naive. Most of the jobs created have simply been created to administer the Stimulus, or having been saving jobs that should have been let go. None of this is actually solving any of the underlying fundamentals of the economy. It is all about feel good. And let me ask a question, how good does your average American feel right now?

Nov 03 03:57 AM

[Mad Hedge F...:]

plw I know what keeps Obama awake at night. Let’s say we spend our $2 trillion in stimulus and get a couple of quarters of weak growth. Then once the effects of the stimulus wear off, we slip back into a deep recession, setting up a classic “W.” Unemployment never does stop climbing. This happened to Roosevelt in the thirties. So congress passes another $2 trillion reflationary budget. Everybody gets wonderful new mass transit upgrades, alternative energy infrastructure, and bridges to nowhere. But with $4 trillion in spending packed into two years, inflation really takes off. The bond market collapses, the dollar tanks big time, gold goes ballistic to $5,000, and silver explodes to $50. Ben Bernanke has no choice but to engineer an interest rate spike, taking the Fed funds rate up to a Volkeresque 18%. Housing, having never recovered, drops by half again. This all happens in the 2012 election year. Obama is burned in effigy, a Mormon is elected president, and the Republicans, reinvigorated by new leadership, retake both houses of congress. We invade Iran. Crude hits $500. This is not exactly a low probability scenario. Remember Jimmy Carter? This is why junk bond yields are still stubbornly high at 12.5%, and credit default swaps live at lofty levels. Are the equity markets pricing in this possibility? No chance. The risk of Armageddon is still out there. Personally, I give it a one in three chance. Pass the Xanax.

Nov 03 11:26 AM