EconProph

In terms of GDP and even the headline unemployment rate, the current crisis of the past 2 years is nowhere near being a “depression”.  The stimulus programs and other monetary support programs have prevented a global banking crisis from becoming a depression, unlike 1930.  However, there is one group that is suffering mightily.  In this particular recession, let’s call it the “Great Recession”, the economy simply is not creating new jobs.  As a result, for many of those unfortunate enough to become unemployed, there has been no new job to find.  Our current unemployment rate may have stopped rising, but that’s largely because we’ve quit laying off and firing people.  New jobs to employ the existing unemployed are simply not being created at anything near the rates they have in the past.

As a result, while 9.7% of the entire labor force was without a job in January 2009, a whopping 4.1% of the entire labor force has been without a job for over 26 weeks! This is way beyond anything we have seen since The Great Depression years.  Unchecked, there will be enormous human costs and eventually social consequences of our current failed policies to create jobs.

Unemployed over 26 Weeks

Click on graph for larger image in new window.

The blue line is the number of workers unemployed for 27 weeks or more. The red line is the same data as a percent of the civilian workforce.

According to the BLS, there are a record 6.31 million workers who have been unemployed for more than 26 weeks (and still want a job). This is a record 4.1% of the civilian workforce. (note: records started in 1948)

US employment/unemployment stats for January 2009 came in.  The headlines:  9.7% unemployment rate (down from 10.0) and 20,000 jobs lost.

At first glance this looks strange and counter-intuitive:  fewer actual people working, yet a higher unemployment rate.  Of course, we’ve seen this in the past with the change in the rate and the change in actual jobs giving conflicting signals.  In the past, the usual explanation is a change in the size of the labor force (the denominator in the unemployment rate) where large numbers of people got discouraged and dropped out of the labor force.  This time, though, the explanation for conflicting signals is more procedural.  The two numbers (unemp rate and # of jobs) come from two different statistical sampling surveys each month.  The unemployment rate is calculated from the responses of a sample of households – actual workers themselves.  The number of jobs estimate is a sum from two sources:  a survey of employers and an econometric model that estimates how many new businesses were created/failed each month.  When the reality in the economy is that there’s close to no change, then the two surveys can easily give conflicting signals.

Conclusion:  Like all macro stats, there’s a lot of “fuzziness” in the numbers. Judgement required. These are estimates based on statistical samples.  Judgement is required.  Using macro stats to monitor the health of the economy is  akin to using a child’s compass to find your way through the woods – you’ll eventually know the direction you’re headed, but there’s a lot of imprecision involved.  People (and politicians) get in trouble when they treat the numbers as if they’re like a speedometer on your car or like an accounting financial statement.

More numbers, links, and graphs below the fold: (more…)