That stubbornly high unemployment rate

By Felix Salmon
June 4, 2010
monthly payrolls report -- can in and of itself mark the beginning of the end of the recovery. But this month's numbers are still depressing, coming in well below lofty expectations, and having no silver lining: there were no upward revisions to previous months, there was no big fall in the unemployment rate, there was no obvious reason to believe that the 411,000 temporary employees hired in May to work on Census 2010 would otherwise have found private-sector employment.

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No single datapoint — not even the monthly payrolls report — can in and of itself mark the beginning of the end of the recovery. But this month’s numbers are still depressing, coming in well below lofty expectations, and having no silver lining: there were no upward revisions to previous months, there was no big fall in the unemployment rate, there was no obvious reason to believe that the 411,000 temporary employees hired in May to work on Census 2010 would otherwise have found private-sector employment.

The really recalcitrant number here is the unemployment rate, which is staying stubbornly near 10% no matter what payrolls do: when they’re healthy, more people start looking for work. But if you want a hint of a glimmer of hope, at least the broad U6 underemployment rate is heading in the right direction: it was 16.6% in May, down from a whopping 17.1% in April. (But it’s still higher than it was at the beginning of the year.) And more generally, of course, this degree of labor-market weakness is yet more reason to believe that inflation simply isn’t an issue for the foreseeable future, especially given the strength of the dollar. So the Fed is going to be happy keeping rates at zero for the time being: remember it has a dual mandate, and that Ben Bernanke should care just as much about bringing the unemployment rate down as Barack Obama does.

My feeling, however, is that both of them are going to be disappointed. Expect unemployment to remain over 9% through the midterm elections — compared to a rate of just 6.9% in November 2008, when Obama was elected. It’s that number, rather than anything going on right now in the Gulf of Mexico, which is really “Obama’s Katrina”.

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