Saturday, December 6, 2008

Unemployment figures

It's hard to sugarcoat numbers like these, somewhere between half to two-thirds of a million jobs lost on net in the month of November. The half a million figure comes from the Department of Labor's establishment data (information directly from firms), while the two-thirds figure comes from its monthly interviews of households.

To get even more academic for a moment and to borrow from George Will, those figures actually understate the number of jobs lost. In good times and bad, jobs are created and destroyed. Net job changes reflect the difference in the two flows, with new jobs offsetting some of the old jobs that were lost. A partial indication of the amount of dislocation is the more than 2 million people who have newly filed for unemployment claims in the past month. A better, though slightly dated, picture comes from the September job flows figures, which indicated that more than 4 million job separations occurred that month, along with about the same number of hires and 3.3 million job openings.

While distressing in themselves, we should brace ourselves for much worse job numbers in the coming months. From all indications, economic output is still contracting, with the pace of that contraction possibly accelerating. During that contraction, unemployment will get worse, and the job problems may not end there. Over the last two recessions, unemployment has been a lagging indicator. In the 1990-1 recession, unemployment didn't peak until June 1992 when it hit 7.8 percent, and in the 2001 recession, it didn't peak until June 2003 when it reached 6.3 percent. It's hard to say how much longer the economy will contract, but it's reasonable to assume that unemployment will continue to trend up through at least the coming year.

At 6.7 percent, the unemployment rate has now passed the peak from the last recession and on a path that would take it past the peak from the 1990-1 recession, perhaps as soon as next summer. Historically, (see the figures for the last 60 years from the BLS below), peak unemployment rates near 7 1/2 percent have happened before. However, as the country's experience in the late 1970s and early 1980s shows, post-war recessions can also produce much worse unemployment. For example, with the exception of just a few months, unemployment was at or above 7 1/2 percent from May 1980 until August 1984, peaking at nearly 11 percent at the end of 1982.
In some ways, we have been lucky to have had such little unemployment over the past 15 years; before the late 1990s, you have to go back to the 1960s to find a prolonged period of unemployment below 5 percent.

There is scant comfort that you can take out of the current job trends other than the perspective that the country has experienced some very bad economic times before and pulled through them. It will surely do so again.