Saturday, November 07, 2009

Unemployment Rate Shows Worrisome Trend

Even if you consider unemployment to be a lagging indicator of economic health, the latest monthly reports from the federal government should give one pause. Unemployment is actually at 17.5%. That's from the NYT, which gives it top billing. The shine is off the Administration's stimulus efforts because it shows that many people have given up their job hunting and who are underemployed:

With the release of the jobs report on Friday, the broadest measure of unemployment and underemployment tracked by the Labor Department has reached its highest level in decades. If statistics went back so far, the measure would almost certainly be at its highest level since the Great Depression.

In all, more than one out of every six workers — 17.5 percent — were unemployed or underemployed in October. The previous recorded high was 17.1 percent, in December 1982.

This includes the officially unemployed, who have looked for work in the last four weeks. It also includes discouraged workers, who have looked in the past year, as well as millions of part-time workers who want to be working full time.

The official jobless rate — 10.2 percent in October, up from 9.8 percent in September — remains lower than the early 1980s peak of 10.8 percent.

The rate is highest today, sometimes 20 percent, in states that had big housing bubbles, like California and Arizona, or that have large manufacturing sectors, like Michigan, Ohio, Oregon, Rhode Island and South Carolina.
Moreover, there's few signs that this situation is improving as the rate jumped from September to October by four points. (9.8 to 10.2). That suggests we have yet to reach a peak in unemployment, even if you consider this a lagging indicator of economic health, the trend should be worrisome; which itself builds in caution to employers considering employment decisions.

The Administration's efforts to limit unemployment have met with abject failure considering that the Administration hoped that the stimulus would limit the peak of unemployment to 8% and thought that if nothing were done, unemployment would peak around 9% (graphic via Heritage Foundation). The problem is that the stimulus effort has done nothing to limit unemployment, and may have actually made the situation worse.

Whereas many hoped that the unemployment rate would top out, it appears that we have not yet seen the peak unemployment under any of the metrics used to measure unemployment. That means there are more job losses on the horizon and job creation is simply not occurring to replace those lost jobs. It also should raise red flags on the holiday shopping season when retailers hope to make the majority of their annual revenues. If people are out of work, they're not in a position to spend, and that affects consumer sentiment.

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