How High Will U.S. Unemployment Go?

November 6, 2009

Leaving aside the unexpected 0.4 percentage point (ppt) increase in the jobless rate to 10.2%, the U.S. monthly labor statistics had several encouraging aspects.  Nonfarm payroll jobs dropped 188 thousand in October compared to average declines of 226K in 3Q, 428K in 2Q and 691K in the first quarter of 2009.  That’s an extremely significant trend of improvement and dovetails with the progressively reduced average jobless insurance claims in successive four-week periods of 648K last April 18, 630K in the four weeks to May 16, 614K on June 13, 585K on July 11, 566K on August 8, 572K on September 5, 541K in the four weeks to October 3 and 524K on the most recent four weeks to October 31.

Some analysts suggests that the jump in joblessness to 10.2% from 9.8% may be a last gasp of this awful trend.  The all-time post-WW2 peak of 10.8% in November and December 1982 was reached with a final increase of 0.4 ppts in November after back-to-back advances of 0.3 ppts in September and October.  Perhaps this cycle will be similar.  To be sure, the subsequent two cycles of rising unemployment ended with very different formations.  In the most recent one, joblessness hit its high for the move in June 2003 with a rise of 0.2 ppts to 6.3%.  That followed incremental increases of 0.1 ppts in February, April and May surrounding no change in March.  Prior to June 2003, one has to go back 20 months to October 2001 to find the previous time when joblessness rose by more than 0.2 ppts in a single month.  In the penultimate cycle, the jobless rate peaked at 7.8% in June 1992 with increases of 0.2 ppts both that month and in May, and December 1991 had been the previous month to see unemployment climb by more than 0.2 ppts.

Moreover, the present unemployment cycle appears different from the one in the early 1980’s in an important respect.  Yes, joblessness made one final steep upward dash back then just as it may be doing now.  But the final run-up late in 1982 was preceded by several months of small gains (0.0 ppts in August, 0.2 ppts in June and July and 0.1 ppts in May.  Long before the cycle ended however, there was a run of hefty monthly gains: 0.4 ppts in November 1981 and 0.3 ppts in October 1981, February and April 1982.  Unlike the last three cycles, the current rise in unemployment lacks a rather lengthy period when the trend remains upward but very gradual.  This is unfortunate and suggests that the peak still lies several months away. 

It’s conceivable that the November 1982 post-war high could be eclipsed eventually.  From a common sense standpoint, such an outcome should not be surprising.  If this is indeed the worst recession since the 1930’s as so many pundits and U.S. president claim repeatedly, should not unemployment peak out at a postwar high?  Meanwhile, the broadest Labor Department gauge of unemployment and under-employment has risen more sharply than the conventional data series.  The 10.2% last month in the narrowly defined measure was 3.6 percentage points greater than in October 2008, while the more inclusive rate of 17.5% was 1.2 ppts higher than in July and 6.4 ppts higher than a year earlier. 

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



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