The Unemployment Rate in Perspective

The U.S. Labor Department announced Friday that the unemployment rate had risen to a 26-year high of 10.2% in October - an increase of 0.4 of a percentage point, even though the labor force contracted as well.

The graph below, courtesy of Chart of the Day, illustrates the unemployment rate since 1948 and provides some perspective on the current state of the labor market. As shown, Friday’s increase above the 10% level marks only the second time such a move has occurred during the post-World War II era.

Closer analysis of the chart indicates that the unemployment rate is a lagging indicator, peaking after the end of a recession. However, in the case of the previous two recessions the rate only peaked several quarters later following an improvement in real GDP. Asha Bangalore (Northern Trust) said:

A similar case is projected for the current recovery. Our forecast is for the unemployment rate to peak in mid-2010. At the same time, real GDP should continue to advance during the final months of 2009 and all of 2010.

Click to enlarge:

Source: Chart of the Day, November 6, 2009.

Comments

[dvdivx:]

It's too easy to look at the chart and come to the wrong conclusion. It should have covered the 30's if you want a more accurate picture. Much higher taxes are about to hit thanks to the health care fiasco and cap and tax if it passes. Businesses will be forced to lay off even more to keep generating a profit and only those doing business outside the US will be doing well. I really think the next stop for unemployment will be 15% (25% actual).

Nov 08 01:51 AM

[Mr. G:]

It is difficult to look at older economic models and make any future predictions. The rise of capitaism after the cold war creates a new and different economic environment. At minimum, competition has increased dramatically, but the world has over 6 billion to feed and will create new consumers even more dramatically.

How the global markets play out creates pressure on the US to compete and the future is as best speculative as the "new" economic order unwinds.

Nov 08 12:37 PM

[chris coonan:]

I think BLS understates statistics to start with, and we were likely at 10 percent a while back.

I know that the figure represented for my profession is not correct....9 percent for Architects??? Who is designing buildings right now.....BLS needs to try harder.

Nov 08 01:02 PM

[Moon Kil Woong:]

I remember when all the analysts mirrored the government and said unemployment shouldn't reach more than a tad over 8% and should drop after 6-9 months. Now all the analysts are once again lapping up the bologna the government throws out. What use are they? Do they have a logical, independent, analytical brain in their head?

I would like to see their justification. Charts like these show that this decline bears no resemblance to recent past declines. Furthermore, although theoretically the spike up should end there is no indication it will end in the 10% range. I give this analyst credit not to call the top range but still.

As for GDP, real is not the word I would call it when you devalue the dollar over around 13% to get slightly over a 3% increase not to mention that all of it was government fat and temporary wasteful one time stimulus. So I wonder, if they predict further growth in GDP does that mean they expect the dollar to dip how much further? Do they expect cash for say refrigerators, lawnmowers, and computers? How much longer will this have to continue before it all gets magically better? And why won't it just melt down into a soviet socialist type heap?

Personally, I would like one of these analysts to explain how it all gets better mid 2010 when the market realizes about that time all the stimulus money is about to end? Are they presupposing a $2-3 trillion dollar follow on stimulus. I'd like to hear how they care going to sell that to foreign bondholders? Believing that without a second stimulus the downturn will end to me sounds like lunacy. Throw these analysts out by the ear.

Nov 08 10:47 PM