U.S. Jobless Rate Headed For Post-1947 High

June 23, 2009

President Obama concedes that the jobless rate will probably crest above 10%.  I believe that such will peak above 11.0%, and that would exceed the previous modern high of 10.8% in November and December of 1982.  A double-dip recession in the early 1980’s ended in November of 1982.  The synchronized timing of the turn in economic activity and the peak in unemployment leaves a false impression that the two trends move generally in tandem.  It happened in 1982-3 because of powerful post-recession growth of 7.2% in the first half of 1983 at a seasonally adjusted annual rate followed by 8.3% saar in 2H83 and 7.6% saar in 1H84.  We will not see half of that six-quarter 7.7% annualized pace following the current recession.  The jobless rate six months before the peak was at 9.4% in May 1982, matching the level in May 2009.  Half-way into 1983 after economic growth of more than 7% saar, unemployment had settled back only 0.7 percentage points to 10.1%.  Normally, unemployment is a lagging indicator, and that is especially true when the future is as uncertain as now.

The last U.S. recession ended in November 2001 when unemployment was at 5.5%, and the latter did not crest for another 19 months until June 2003 at 6.3%.  During that period, real GDP expanded 2.0% saar.

The last recession is also not an ideal precedent for predicting the timing and level of peak unemployment in the current business cycle.  The Great Recession will impose more structural change than a typical recession.  The destruction of retirement savings will encourage baby boomers to work into later years, constraining the natural rhythm of openings for new young labor market entrants. 

Meanwhile, the loss of household wealth but persistence of ultra-high levels of household debt point to a sustained and painful period of consumer self-deprivation, which is apt to keep the savings rate at 7% or above and to constrain the growth of retail-sector employment. The recession has also accelerated the exodus of America’s manufacturing base, and many factory jobs will not be returning, either.  Jobs in the 21st century are going to be increasingly education-intensive.  Skills have not expanded commensurately with needs.  Education has to be beefed up, but universities instead have seen endowments squeezed and state funding cutbacks.  Even if education could handle task, the question remains if the normal spectrum of intellectual capabilities will be compatible with a jobs portfolio that becomes increasingly skewed to the upper end.  Not everybody is cut out to be a software engineer.  Healthcare, which has shouldered a high share of recent job creation, actually needs to be shifted to a lower gear instead of a higher one.  That sector is fast approaching a 20% share of GDP and should be maybe half as big judging by the standards and results of many other advanced and developing economies.  Suffice it to say, the disparity of job needs and worker skills is poised to widen, and that too will impede efforts to stop rising unemployment and bring such down within a socially acceptable timeframe.

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



One Response to “U.S. Jobless Rate Headed For Post-1947 High”

  1. […] a June 23rd posting on this blog, I argued that unemployment will likely peak not only above 10% but probably at a new post-war peak […]