Economists Scramble to Avoid Saying the “D” word, Depression
While panic ridden stories sell papers from Maine to Baja California, every newspaper always tries to pain a rosy picture about the economy. These days it is all about spin. And to avoid saying the D word, depression, they try to spin the jobless numbers in the best light possible, short of lying. The headline numbers understate the severity of the problem. They also obscure an even grimmer fact: Unless there is more government support, it will take several years of robust economic growth to recoup the jobs that have been lost.
The unemployment rate includes only jobless people who have looked for work in the past four weeks. The underemployment rate — which also includes jobless workers who have not recently looked for work and part-timers who need full-time work — reached 17.5 percent in October. And the long-term unemployment rate — the share of the unemployed population out of work for more than six months — also continues to set records. It is now 35.6 percent.
“At no time in post-World War II America has it been more difficult to find a job, to plan for the future, or — for tens of millions of Americans — to merely get by.”
The official job-loss data also fail to take note of 2.8 million additional jobs needed to absorb new workers who have joined the labor force during the recession. When those missing jobs are added to the official total, the economy comes up short by 10.1 million jobs.
A jobless recovery or jobless growth is a phrase used by economists, especially in the United States, to describe the recovery from a recession which does not produce strong growth in employment.
“It’s a good picture compared to where we were, which was just a free fall,” said Dean Baker, a director of the Center for Economic and Policy Research in Washington. “But compared to anything else, this is just a horrible report. The rate of decline is slowing, but it’s not going to stop. We’re likely on a path toward more than 10 percent unemployment.”
Unemployment surged from 9.8 percent in September to 10.2% last month, its highest level since 1983. At the same time, the economy lost 190,000 more jobs. That means employers have eliminated 7.3 million positions since the recession began in December 2007.
Gerald Celente – the economists are coming up with this new line, jobless recovery. How about almost pregnant? There is no such thing. You cannot have a jobless recovery in an economy where 2/3rds or more 72% is consumer based.
After years of borrowing against soaring home values, tapping credit cards and harvesting stock market winnings to spend in excess of their incomes, millions of households are being forced to conserve. That limits consumer spending, which makes up 70 percent of the nation’s economy. And that makes businesses that might otherwise hire and expand more inclined to hunker down.
“I don’t think businesses will hire back anytime soon,” said Allen Sinai, chief global economist at Decision Economics. “Companies are rewarded by the stock markets for not hiring and keeping their costs down. We will see another jobless recovery.”
Additionally, the U.S. Labor Department survey of companies doesn’t count the self-employed and undercounts employees of small businesses. So the economic picture could be even more dire, as small businesses account for about 60% of the nation’s jobs. Adding to the demand decrease associated with the recession, small businesses have been crimped further by banks tightening credit not willing to lend.
“The strongest growth in high-end services is usually propelled by growth in tangible industries, such as energy, agriculture or manufacturing. When those industries tank….high-end services decline with them.”
One economic theory – Okun’s Law, suggests an empirically observed relationship relating unemployment to losses in a country’s production.
The theory posits that for every point above normal that unemployment moves, GDP growth falls by 2%, and vice versa. While not an exact science with plenty of critics, the equation does provide a good quantifiable estimate of the effects of unemployment upon GDP output. Indeed, unemployed workers represent wasted production capability, and it also means less money being spent by consumers. With consumer spending accounting for about 70% of the U.S. GDP, prolonged high unemployment leading to chronic lower spending has the potential to lead to lower growth, more unemployment, beginning a vicious cycle.
The unemployment rate is traditionally characterized as a lagging indicator, and Raymond James just reminded investors that on average, unemployment starts to go down seven months after the trough in the S&P 500 is reached.
Nevertheless, due to the sheer speed and volume of job losses across a wide range of sectors, the unemployment rate should no longer be regarded as a lagging indicator as it does have the potential to influence future market behaviors and outlooks.
Just last month, the OECD noted that growth in the world’s industrialized economies has resumed, but warns that unemployment is set to continue to rise well into 2010.
This is echoed by the testimony before the Senate Democratic Policy Committee this week from Brookings Institution, who warned that even if the economy adds 200,000 jobs a month (a tall order, by the way), it will take seven years to lower the unemployment rate to 5%.
Moreover, even if companies do start re-staffing next spring, the unemployment rate could easily hit 11% from a growing labor force, the return of discouraged workers, the hiring of part-timers instead of the unemployed.
The Federal Reserve Bank should not add to the pain the country is in by dumping dollars into the economy, thus creating inflation. Whole segments of the population could be wiped out. That would spell doom for many small businesses.
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