Unemployment: Headed for 12 Percent?

James Pethokoukis, writing for the Reuters blog November 11, reports that economist David Rosenberg of Gluskin Sheff believes the U.S. unemployment rate will go above 12 percent and has the potential to exceed 13 percent. Why? According to the Reuters post, because of an underestimation of the damage inflicted on the labor market.

Here are 12 things to think about when considering if the unemployment rate is headed for 12 percent or higher:

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.

2. During this two-year recession, employment has declined a record 8 million, a record in the post-World War II period.

3. There were 11 million full-time jobs lost (typically three million in a 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 average work week has been cut from 33.8 hours to a record low 33.0 hours - the labour input equivalent is another 2.4 million jobs lost.

6. The number of permanent job losses (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 the unemployed to find employment the more difficult it is going to be to retrain them in the future when labour demand does begin to pick up.

8. The youth unemployment rate is now getting close to a record 20%.

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%.

10. When improvement in the economy does happen, employers will first increase the length of the work week, which would be the equivalent of hiring two million workers. That will happen before any new jobs are created.

11. 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.

http://blogs.reuters.com/james-pethokoukis/2009/11/11/12-reasons-unemployment-is-going-to-at-least-12-percent/