School Graduates and Jobs

March 4, 2009

Markets are bracing for a bigger loss in U.S. employment in February than any so far this cycle including drops of 598K in January, 577K in December and 597K in November.  Unemployment conceivably might reach 8% in Friday’s report.  As dismaying as these figures would be, worse news may lurk ahead when college graduates enter the labor force in late spring.  Many students reportedly are seeking graduate degrees, but this strategy for bypassing a difficult labor market is colliding with much tighter purse strings at the universities.  State school budgets have been squeezed by reduced tax revenues, and eroded endowments have caused similar problems at private institutions.  The combination of significantly more applicants but reduced acceptances is making this an extraordinarily competitive year for students wishing to advance their education.  I’ve heard of one prestigious program, for example, that could accept no more than 2.75% of its applicant pool.

From a low of 4.4% in March 2007, the U.S. unemployment rate first crossed 5% a year later in March 2008. It took 5 more months to surpass 6% in August and another 4 months to reach 7% in December.  Crossing three big-handle thresholds in a single calendar year is impressive and did not happen in the early 1980’s.  From a low of 5.6% in May 1979, the jobless rate reached 6% in August of that year, crossed 7% in May 1980, 8% in November 1981, 9% in March 1982 and 10% in September 1982.  The peak of 10.8% in that cycle printed two months later in November.  The advance of unemployment in the mid-1970’s recession, the one associated with the first oil price shock, was more compressed.  From a low of 4.6% in October 1973 when the Yom Kippur war was fought, the jobless rate reached 5% the following January, crossed above 6% in October 1974, 7% in December and 8% in January 1975.  A peak of 9.0% in that cycle was reached in May 1975.  These two precedents provide control groups against which to measure incremental rises of joblessness from the current point in this recession.  It is extremely probable that this economic downturn will involve a greater peak-to-trough decline of real GDP than occurred in any other U.S. post-war recession.  In spite of a big fiscal stimulus with job creation as a central goal, it would be very surprising if the jobless rate did not peak above 9.0%, and a reasonable possibility exists that the 10.8% high in late 1982 might be eventually exceeded.  A flash-point in the path from 7.6% now to such levels will occur this summer.

Copyright 2009 Larry Greenberg.  All rights reserved.  No secondary distribution without express permission



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