12 reasons unemployment is going to (at least) 12 percent

November 11, 2009

Gluskin Sheff economist David Rosenberg, formerly of Merrill Lynch, thinks the unemployment rate is going to at least 12 percent, maybe even 13 percent. Optimists, Rosenberg explains, underestimate the incredible damage done to the labor market during this downturn. And even before this downturn, the economy was not generating jobs in huge numbers. If he is right, all political bets are off. I think the Democrats could lose the House and effective control of the Senate.  I think you would also be talking about  the rise of third party and perhaps a challenger to Obama in 2012.

So here is what I gleaned from Rosenberg’s latest report (bold is mine):

1. For the first time in at least six decades, private sector employment is negative on a 10-year basis (first turned negative in August). Hence, the changes are not merely cyclical or short-term in nature. Many of the jobs created between the 2001 and 2008 recessions were related either directly or indirectly to the parabolic extension of credit.

2. During this two-year recession, employment has declined a record 8 million. Even in percent terms, this is a record in the post-WWII experience.

3. Looking at the split, there were 11 million full-time jobs lost (usually we see three million in a garden-variety recession), of which three million were shifted into part-time work.

4.There are now a record 9.3 million Americans working part-time because they have no choice. In past recessions, that number rarely got much above six million.

5. The workweek was sliced this cycle from 33.8 hours to a record low 33.0 hours — the labour input equivalent is another 2.4 million jobs lost. So when you count in hours, it’s as if we lost over 10 million jobs this cycle. Remarkable.

6. The number of permanent job losses this cycle (unemployed but not for temporary purposes) increased by a record 6.2 million. In fact, well over half of the total unemployment pool of 15.7 million was generated just in this past recession alone. A record 5.6 million people have been unemployed for at least six months (this number rarely gets above two million in a normal downturn) which is nearly a 36% share of the jobless ranks (again, this rarely gets above 20%). Both the median (18.7 weeks) and average (26.9 weeks) duration of unemployment have risen to all-time highs.

7. The longer it takes for these folks to find employment (and now they can go on the government benefit list for up to two years) the more difficult it is going to be to retrain them in the future when labour demand does begin to pick up.

8. Not only that, but we have a youth unemployment rate now approaching a record 20%. Again, this is going to prove to be very problematic for employers in the future who are going to be looking for skills and experience when the boomers finally do begin to retire.

9. The gap between the U6 and the official U3 rate is at a record 7.3 percentage points. Normally this spread is between 3-4 percentage points and ultimately we will see a reversion to the mean, to some unhappy middle where the U6 may be closer to 15.0-16.0% and the posted jobless rate closer to 12%. This will undoubtedly be a major political issue, especially in the context of a mid-term elections and the GOP starting to gain some electoral ground.

10. But when we do start to see the economic clouds part in a more decisive fashion, what are employers likely to do first? Well, naturally they will begin to boost the workweek and just getting back to pre-recession levels would be the same as hiring more than two million people. Then there are the record number of people who got furloughed into part-time work and again, they total over nine million, and these folks are not counted as unemployed even if they are working considerably fewer days than they were before the credit crunch began.

11. So the business sector has a vast pool of resources to draw from before they start tapping into the ranks of the unemployed or the typical 100,000-125,000 new entrants into the labour force when the economy turns the corner. Hence the unemployment rate is going to very likely be making new highs long after the recession is over — perhaps even years.

12. After all, the recession ended in November 2001 with an unemployment rate at 5.5% and yet the unemployment rate did not peak until June 2003, at 6.3%. The recession ended in March 1991 when the jobless rate was 6.8% and it did not peak until June 1992, at 7.8%. In both cases, the unemployment rate peaked well more than a year after the recession technically ended. The 2001 cycle was a tech capital stock deflation; the 1991 cycle was the Savings & Loan debacle; this past cycle was an asset deflation and credit collapse of epic proportions. And economists think that the unemployment rate is in the process of cresting now? Just remember it is the same consensus community that predicted at the beginning of 2008 that the jobless rate would peak out below 6% this cycle.


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Missed two big reasons. Politicians don’t seem to realize:
1.) Capital is global now. It will go somewhere else where the ROI, regulation and taxes are better. That will slow down re-investment here.
2.) Work is global now. Doesn’t anyone realize how easy it is to outsource jobs? A percentage of those jobs are never coming back; They’ll add the work on the purchasing end from a foreign country. Forget about cheaper; it’s easier that way. You don’t have to manage them, or pay their health care.

Posted by Jim | Report as abusive

You want significant and immediate employment numbers, allow drilling for oil and building refineries, nuclear plants. Now that global warming has been exposed as a hoax beyond all shadow of a doubt (Google Lord Moncton) we need to get back to energy independence. Good jobs too.

Posted by Jim | Report as abusive

scarpy: yes, the “little guy” pays no Federal income tax, but he or she pays through the nose for FICA. And don’t whine that State and local taxes “are a different kettle of fish.” These states are meeting Federal spending standards. They are paying into state employee pensions at rates that will destroy the communities that once hired them. This, too, is part of our inability to reform Social Security. (note: giving SS cancer is NOT reform.)

A 40% tax on medical procedures and equipment is in the healthcare plan. That *is* a future tax on “the little guy.” The spendulus (stimulus) contained even more spending requirements, never mind the deficit (and the future taxes) it has incurred. Everyone is preparing for capital gains and income taxes to go up.

We were not living in a magical land of free money. Monetary policy did not cause the mortgage bubble. We were living in a land of magical rates on securitized mortgages.

The law stated: if you have 10,000 mortgages, you must have x% of their value in reserve. Unless you have 10,000 mortgage shares, in which case you can squeak by with only 40% of x.

And then Barney Frank took the fake profits from Fannie and Freddie (now bailed out to a greater amount than all the private banks and AIGs combined: don’t forget the Federal Reserve bought trillions in Fannie bonds) and gave it as a bonus to renters… to subsidize them… to make up for the subsidies of our govt. guarantees to Fannie and Freddie…

Didn’t work, did it?

I’ve read some of the comments from some of these people on here. Some of them said that companies outsource jobs because of high taxes or some say that it is due to lack of health care. Words of advice…STOP MAKING EXCUSES FOR CORPORATE AMERICA! While some of you CARE so much about US companies, US companies do not care about you! Sure lower the taxes or improve the health care, does that really matter to a short-sighted, greedy business man? Really? Does that really matter to him? He wants cheap labor so he can have MORE money in his pocket! Do you people understand? Corporate America does not care about you! When the system tells you all that you have to have an education to get a good job, you know what they really mean? Let me tell you. It means you only can be educated enough to do the paper work, run a machine, or get your boss’s coffee, BUT Corporate scums are not interested in you being well educated and have critical thinking at the same time! They rather want you to have slave mentality and not question them as they make bad decisions!

Posted by anonymous | Report as abusive

Since bit business is not spending the money they have and banks will not loan money, the economy is contracting, as it often does in a recession because of fear of investing. What Obama should do is spend more to spend American out of the economic crisis. Give the money to retirees, the unemployed, to businesses that want to expand, to whomever will spend the money. That is the way the U.S. got out of the last severe recession (depression)– spending in WWII got us out of it, and nothing else worked.

Posted by Peter777 | Report as abusive

I went to see Paul Krugman speak in Manchester, Vermont in October. After speaking for an hour, he started taking questions from the audience. A man a few feet away from me stood up and asked him where the jobs were going to come from for his children and grandchildren.

Paul answered that he didn’t know, but green jobs might be an answer. He also said that something might come along that we haven’t invented yet, that will revolutionize things similar to computing and the internet. But, in the end, he just didn’t know from where the jobs were going to come.

I don’t think we can sit around and wait for something to be invented that doesn’t exist yet and green jobs could put people to work now. Why, as far as I can see, is nothing being done to create green jobs? What about all of the crumbling infrastructure in this country? Roads, bridges, water pipes that are 100 years old and leaking? We spent billions of dollars to save the casinos on wall street. Can’t we spend a few billion to put some people back to work?

I am extremely disappointed that President Obama is not addressing the unemployment problem.

As Paul Krugman said, “We need a better government than we’ve got.”

This is definitely more than cyclical unemployment. I think there’s structural unemployment at play there. With so many jobs outsourced to developing economies, the structural unemployment only adds to the problems of current cyclical unemployment.

I don’t know how you see a bright side to more life under the U.S. nation as is. The good days are gone for this nation unless masses of people begin to force changes in laws and policies. how many of you accept the notion that we’re in a globalized economy and there’s no good reason to move our society against that, toward local energy and food independence?

Posted by Tod | Report as abusive

Interesting article. Were did you got all the information from… ?

According to the latest U6 measure of unemployment, the number already stands at 17.3% and passed the 12% a long time ago.