RSS Feed MenuThe two charts below give some idea of how very bad the current state of the U.S. labor market is.
The first chart shows that while the headline US unemployment rate has risen from around 5 percent at the start of the current recession to its present level of 9.8 percent, the U-6 measure of unemployment, which includes marginally attached and involuntary part time workers in the unemployment measure, has increased from under 9 percent at the start of the cycle to over 16 ½ percent at present.
The second chart shows that the run-up in involuntary part-time work this recession is the worst in the post-war period and is materially worse than it was in the severe 1981/82 recession. A very large amount of involuntary part time workers suggests that companies will be very slow to hire new workers as the economy starts to recover but instead they will increase hours worked by those already employed.
These charts increase my conviction that it is highly improbable that we can get a meaningful economic recovery in 2010 since these large labor market gaps will put considerable downward pressure on wage growth. I also remain convinced that by November 2010 the headline unemployment figure will remain above 10 percent.
ottovbvs // Oct 17, 2009 at 10:09 am
The headline here is totally misleading. The economy by the principal metric used to measure it, namely GDP, is already recovering. Most economists are forecasting 2.5% growth in the second half of this year and 3% plus for next year. Since Lachman doesn’t seem to know the proper definition of recovery in overall economic activity, I’m not sure his predictions about where unemployment will be in middle of 2010 are worth very much. There’s no doubt this Bush recession which began December 2007 has seriously eroded employment in the US. Unlike all previous recessions since the war it has consumed all the job gains, which were relatively puny anyway at 6.5 million, that occurred during the previous period of expansion while Bush was president. If the economy expands at the rates predicted suffice it to say that it is highly unlikely unemployment will be above 10% by the end of next year.
sinz54 // Oct 17, 2009 at 1:02 pm
ottovbs:
Bill Dudley, president of the NY Federal Reserve, has forecast a “moderate” recovery in 2010, with unemployment declining modestly.
A major factor restraining the pace of recovery, he says, is the “negative wealth effect” caused by Americans looking at the value of their homes (now often worth less than their mortgages), and the collapse of their 401(k) plans. They feel poorer–so they cut back and spend less. And in the U.S. economy, consumer spending accounts for 70% of all spending.
Plus, despite the TARP and whatnot, credit is till tough (I had a credit card canceled on me for no good reason), and banks are still reluctant to lend. This can be a problem for commercial properties whose mortgages have matured and which now need additional financing to keep going.
http://www.newyorkfed.org/newsevents/speeches/2009/dud091005.html
You can kind of see that reflected in the stock market. It is rising, as the severe recession eases somewhat. But it’s only rising gradually. Investors clearly don’t see boom times ahead, just a lessening of the terrible conditions we’ve had.
ottovbvs // Oct 17, 2009 at 6:10 pm
sinz54 // Oct 17, 2009 at 1:02 pm
“Bill Dudley, president of the NY Federal Reserve, has forecast a “moderate” recovery in 2010, with unemployment declining modestly.”
…….So he agrees with me
“I had a credit card canceled on me for no good reason),
………You must be a credit risk buddy
” But it’s only rising gradually. ”
…….50% in six months…..that’s gradual?…….Sinz, trust me, you know sfa about business and economics….stick to healthcare where you do have a fair grasp of the subject I will admit including a lot of detail which I respect….because as with most things, the devil is in the details
sinz54 // Oct 18, 2009 at 9:39 am
ottovbvs: 50% in six months…..that’s gradual?
Yep.
Look at the bear market rallies in the early 1970s under Nixon, and in the 2000s under Bush 41.
http://stockcharts.com/charts/historical/spx1960.html
Starting in 1970, at the start of the Nixon Administration, the stock market rallied 60% in six months. But we were in long-term bear market conditions, and the rally fizzled. By 1974, the stock market was LOWER than it had been in 1970.
After the 2002 bear market low following the 9-11 attacks, the stock market rallied some 80%, reaching a high in 2007. But you know what happened after that. By the end of 2008, the stock market was LOWER than it had been in 2002!
When the long-term outlook is uncertain or poor, even huge market rallies eventually fizzle. That’s one reason why I assert that it’s impossible for Technical Analysis to tell the difference between the start of a bear market rally and the start of a true long-term bear market. They look identical (and bear market rallies can sucker in lots of amateur investors). The only way to know for sure is to look at economic fundamentals to see if the rally can be sustained.
Fortunately, in 2003, I had the good sense to invest in precious metals, base metals, and natural resources, as I observed the geopolitical chaos of the War on Terror. I have tripled my money, whereas the S&P 500 Stock Index is no higher today than it was in 1998.
Going forward, my next move will be to bet on rising interest rates by shorting the long bond.
As you know, interest rates have been VERY low as the Fed tries to stimulate the economy. But as it recovers, albeit modestly, the huge expansion of the money supply will be inflationary–and the Fed will be forced to raise interest rates. And by shorting the long bond, I will do well–because I very much doubt that the Fed will raise interest rates enough to REALLY dampen inflationary expectations. Just like Arthur Burns.
Finally:
I continue to look past your personal attacks on me, which have been nonstop since you got here. I know how left-wingers like you operate. You revel in the sewer and the gutter. I refuse to be dragged into the sewer with you.
ottovbvs // Oct 18, 2009 at 12:49 pm
sinz54 // Oct 18, 2009 at 9:39 am
……….All this stuff about bear rallies may or may not be true…….but that’s NOT what you said……..you said:
” You can kind of see that reflected in the stock market. It is rising, as the severe recession eases somewhat. But it’s only rising gradually. Investors clearly don’t see boom times ahead, just a lessening of the terrible conditions we’ve had.”
………See no mention of “bear rallies” but the very definite statement that a 50% rise in 6 months is “gradual” which I’m afraid is total bs…………Frankly your dissertation above just confirms that alas you know sfa about economics or business……for this to turn into a bear rally you would have to be predicting that the market is likely to lose at least half that gain during the next year…..if that’s what you believe by all means go and bet your house on it by shorting the market………er…I wouldn’t if I were you unless you want to be sleeping in the gutter.