by Kimble Charting Solutions
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In 1930, there were 123 million Americans.
At the height of the Depression in 1933, 24.9% of the total work force or 11,385,000 people, were unemployed.
Will unemployment reach 25% during this current crisis?
I don’t know. But the number of people unemployed will be higher than during the Depression.
Specifically, there are currently some 300 million Americans, 154.4 million of whom are in the work force.
Unemployment is expected to exceed 10% by many economists, and Obama “has warned that the unemployment rate will explode to at least 10% in 2009″.
10 percent of 154 million is 15 million people out of work – more than during the Great Depression.
So many Americans have been jobless for so long that the government is changing how it records long-term unemployment.
Citing what it calls “an unprecedented rise” in long-term unemployment, the federal Bureau of Labor Statistics (BLS), beginning Saturday, will raise from two years to five years the upper limit on how long someone can be listed as having been jobless.
The change is a sign that bureau officials “are afraid that a cap of two years may be ‘understating the true average duration’ — but they won’t know by how much until they raise the upper limit,” says Linda Barrington, an economist who directs the Institute for Compensation Studies at Cornell University’s School of Industrial and Labor Relations.
“The BLS doesn’t make such changes lightly,” Barrington says. Stacey Standish, a bureau assistant press officer, says the two-year limit has been used for 33 years.
Although “this feels like something we’ve not experienced” since the Great Depression, she says, economists need more information to be sure.
The average length of unemployment is higher than it’s been since government began tracking the data in 1948.
The job losses are also now equal to the net job gains over the previous nine years, making this the only recession since the Great Depression to wipe out all job growth from the previous expansion.
According to the BLS, there are 5.839 million workers who have been unemployed for more than 26 weeks and still want a job. This was down from 6.122 million in March. This remains very high, and is one of the defining features of this employment recession.
For example, JPMorgan Chase’s Chief Economist Bruce Kasman told Bloomberg:
[We've had a] permanent destruction of hundreds of thousands of jobs in industries from housing to finance.The chief economists for Wells Fargo Securities, John Silvia, says:
Companies “really have diminished their willingness to hire labor for any production level,” Silvia said. “It’s really a strategic change,” where companies will be keeping fewer employees for any particular level of sales, in good times and bad, he said.And former Merrill Lynch chief economist David Rosenberg writes:
The number of people not on temporary layoff surged 220,000 in August and the level continues to reach new highs, now at 8.1 million. This accounts for 53.9% of the unemployed — again a record high — and this is a proxy for permanent job loss, in other words, these jobs are not coming back. Against that backdrop, the number of people who have been looking for a job for at least six months with no success rose a further half-percent in August, to stand at 5 million — the long-term unemployed now represent a record 33% of the total pool of joblessness.And see this.
The U.S. has largely been financing job creation for ten years. Specifically, as the chief economist for BusinessWeek, Michael Mandel, points out, public spending has accounted for virtually all new job creation in the past 10 years:Private sector job growth was almost non-existent over the past ten years. Take a look at this horrifying chart:
Between May 1999 and May 2009, employment in the private sector sector only rose by 1.1%, by far the lowest 10-year increase in the post-depression period.
It’s impossible to overstate how bad this is. Basically speaking, the private sector job machine has almost completely stalled over the past ten years. Take a look at this chart:
Over the past 10 years, the private sector has generated roughly 1.1 million additional jobs, or about 100K per year. The public sector created about 2.4 million jobs.
But even that gives the private sector too much credit. Remember that the private sector includes health care, social assistance, and education, all areas which receive a lot of government support.
Most of the industries which had positive job growth over the past ten years were in the HealthEdGov sector. In fact, financial job growth was nearly nonexistent once we take out the health insurers.Let me finish with a final chart.
Without a decade of growing government support from rising health and education spending and soaring budget deficits, the labor market would have been flat on its back.
America’s biggest — and only major — jobs program is the U.S. military.
The use of the military-industrial complex as a quick, if dubious, way of jump-starting the economy is nothing new, but what is amazing is the divergence between the military economy and the civilian economy, as shown by this New York Times chart.
In the past nine years, non-industrial production in the US has declined by some 19 percent. It took about four years for manufacturing to return to levels seen before the 2001 recession — and all those gains were wiped out in the current recession.
By contrast, military manufacturing is now 123 percent greater than it was in 2000 — it has more than doubled while the rest of the manufacturing sector has been shrinking…
It’s important to note the trajectory — the military economy is nearly three times as large, proportionally to the rest of the economy, as it was at the beginning of the Bush administration. And it is the only manufacturing sector showing any growth. Extrapolate that trend, and what do you get?
The change in leadership in Washington does not appear to be abating that trend…
Defense spending means that the government is pulling away resources from the uses determined by the market and instead using them to buy weapons and supplies and to pay for soldiers and other military personnel. In standard economic models, defense spending is a direct drain on the economy, reducing efficiency, slowing growth and costing jobs.
A few years ago, the Center for Economic and Policy Research commissioned Global Insight, one of the leading economic modeling firms, to project the impact of a sustained increase in defense spending equal to 1.0 percentage point of GDP. This was roughly equal to the cost of the Iraq War.
Global Insight’s model projected that after 20 years the economy would be about 0.6 percentage points smaller as a result of the additional defense spending. Slower growth would imply a loss of almost 700,000 jobs compared to a situation in which defense spending had not been increased. Construction and manufacturing were especially big job losers in the projections, losing 210,000 and 90,000 jobs, respectively.
The scenario we asked Global Insight [recognized as the most consistently accurate forecasting company in the world] to model turned out to have vastly underestimated the increase in defense spending associated with current policy. In the most recent quarter, defense spending was equal to 5.6 percent of GDP. By comparison, before the September 11th attacks, the Congressional Budget Office projected that defense spending in 2009 would be equal to just 2.4 percent of GDP. Our post-September 11th build-up was equal to 3.2 percentage points of GDP compared to the pre-attack baseline. This means that the Global Insight projections of job loss are far too low…
The projected job loss from this increase in defense spending would be close to 2 million. In other words, the standard economic models that project job loss from efforts to stem global warming also project that the increase in defense spending since 2000 will cost the economy close to 2 million jobs in the long run.
“What does it all mean? Well, the good news is that the index is still expanding. Although 52.8 is a big miss it is still an expansion. So it’s not yet time to panic. It is worth noting, however, that lower ISM reports have correlated very highly with equity returns (see here for more). Although the ISM Manufacturing report remains robust at 60.4 it would be surprising to see the two indexes diverge permanently. Because these are diffusion indexes we can likely expect the ISM Manufacturing report to decline in the coming months. And as I discussed last month, that could be a significant headwind for equities – even though it doesn’t point to economic doom.
For now, I still believe the US economy is strong enough to maintain meager growth. The risks still are exogenous – primarily foreign related as China eases their economy and Europe remains mired in a debt crisis. Our balance sheet recession is very much alive, however, the government has done just enough to offset the negative impacts. Unfortunately, the Fed appears to have added another risk to the scenario in commodity prices. We should all hope that the price boom in commodities does not lead to a price collapse. If anything, all of this only confirms the thinking that “hedge in May” is a good idea.”
“So long as you see the picture of, what’s his name, Bernanke, and he still has that job, you gotta run to make sure that you are short” (Treasury bonds).
We all know that the U.S. Treasury has gotten itself into a jam with too much of the national debt now financed with short term paper.
This is a problem for two reasons. First, it creates rollover risk. Second, you can’t “inflate away” debts of very short tenor, for the simple reason that your creditors will have the opportunity to demand higher coupons at frequent intervals. They see you inflating and you end up digging a deeper hole because you are rolling over debt so often!
“An area in which more rather than less government involvement is needed, in my judgement, is the rooting out of fraud. It is the bane of any market system. Fraud is a destroyer of the market process itself because market participants need to rely on the veracity of other market participants”.
"People are starting to see that this sort of malaise is not just going to go away no matter what you do."
"We've had a poor economic recovery to begin with, and now it appears to be segueing into an end."
I feel sad for yet another year of graduates entering a horrible job market. I recently read, and I think it was in the mainstream media, that only half the 2010 college grads have found jobs of any kind, only half of those have found jobs requiring a college education, and that 85 percent of all grads moved right back in with their parents. The job growth rate is so low that we keep employing fewer and fewer people as a percentage of our adult population. Why isn’t that still a recession?
The law school class of 2010 is making news for all the wrong reasons. The budding legal minds who managed to find employment last year have set a new record--only 68.4 percent of them are in jobs that require them to pass the bar exam, the lowest share since the Association for Legal Professionals began collecting data.