Sunday, June 14, 2009

Reading the Unemployment Numbers

The Huffington Post carried a McClatchy article on projected employment numbers over the next few years.The numbers look pretty bad. Some areas of California, for example, won't return to "normal" prerecession employment levels until as late as 2014. Ouch. The article is based on a study done by IHS Global Insight. I don't know much about them but they label themselves as a comprehensive forecasting company covering economics, business, etc.

Now here's my problem. Which prerecession numbers is the McClatchy article referring to? Right now, the unemployment rate is about 9.4%. That's bad. Some would argue, however, that it undercounts the unemployed. That could mean the real unemployment rate is somewhere around 12%, give or take a couple of percentage points. In fact, there's been an argument that the unemployment rate has been underestimated for most of the last eight or nine years.

The current recession is said to have started in December 2007. That may be so but it was very clear by June and July of 2007 that the banking industry was in deep trouble. At that time, not only were layoffs already taking place in the mortgage sector but any number of mortgage firms were also permanently closing their doors. This was the famous uh-oh moment among the major banks a full year before the meltdown. Curiously, it took some eight months for the unemployment rate to significant move upward from 4.6% in June 2007 to around 5% in early 2008. Not bad numbers necessarily for an election year. But then the numbers kept getting worse. Of course, we've seen for some time now that unemployment supposedly follows the beginning of a recession by several months and recovery occurs well before employment returns to normal. Maybe so, but the pattern may be breaking down in ways no one is quite admitting yet.

Keep in mind that the unemployment numbers in the last four months of 2000 were as low as 3.9%. This was the last year Clinton was in office. And maybe the last year the United States had a real economy. What happened after that seems curious. Unemployment for the first few years of the Bush era kept floating up despite the tax cuts. There was 9/11 but the reality is that there should have been a dip in employment for no more than two or three months. Slowly, over the next few years, unemployment rose to an official rate of 6.30% in 2003 and fell slowly to about 4.4% in 2006 during the real estate boom. But average wages for most Americans during all that time were stagnant. And health costs were skyrocketing. The total cost of the oil the United States was importing kept rising. We had two wars that were draining the federal budget with little or no economic benefit for most Americans. So where exactly were these prerecessionary levels that economic experts are speaking of? In fact, where exactly were the good times?

Ah, but employment and the economy are no longer related to one another. My proof? Here's a USA Today article based on—surprise!—an analysis by IHS Global Insight:
The May update of the USA TODAY/IHS Global Insight Economic Outlook Index shows increasing evidence that the recession is likely to end in September, with a mild recovery starting in October.

Many areas of the country won't return to 'normal' employment until perhaps 2014. But the current recession will be over in September of this year? That's, uh, three months from now. How does that square with the unemployment rate? How do we explain the 4-5 year gap? I mean, who's recession are we talking about?! Simple. If you're rich, the recession will be over and you can start investing in the next bubble. That's who our economy is currently designed for. That kind of thinking can longer be sustained or justified. In the meantime, if you're not rich, tough luck.

I can't say it often enough: something is very wrong in our nation, and we need to change.

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1 Comments:

Anonymous S.W. anderson said...

"there's been an argument that the unemployment rate has been underestimated for most of the last eight or nine years."

Unemployment is understated and underemployment is not accounted for. The true number of discouraged workers? It's anyone's guess.

I'm currently reading Kevin Phillips' Bad Money. He makes an ironclad case inflation statistics, along with a bunch of others, have been so jiggered for political purposes over the years as to be nearly worthless.

It's hard enough to make sensible, effective public policy when you have solid data to base policy on. When all you have is dream sheet nonsense, you have a garbage-in, garbage-out situation.

9:12 PM  

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