A Jobless Recovery--Too Cold for Comfort

This is the second in a series of US recovery scenarios, or lack thereof. Notice in this one, we only have red and blue statistical indicators.

Red bars are fast rising statistics. Blue bars represent quickly falling indicators.


This particular scenario hurts because we would continue to see unemployment rise. Lately it seems unemployment has "moderated" at 10%. Optimists hope that we have reached the peak.

But let's take a look at what David Rosenberg, Chief Economist & Strategist at Gluskin Sheff, has to say. He has ranked first in economics in the Brendan Wood International Survey for Canada for the past seven years and was on the U.S. Institutional Investor All American All Star Team for the last four years.

He says there are serious structural issues undermining the US labor market. He thinks US unemployment is headed for 12-13%.

• For the first time in at least six decades, private sector employment is negative on a 10-year basis. Hence, the changes are not merely cyclical or short-term in nature.

• During this two-year recession, employment has declined a record 8 million. Even in percent terms, this is a record in the post-WWII experience.

• There are now a record 9.3 million Americans working part-time because they have no choice. In past recessions, that number rarely got much above six million.

• The work week has been sliced this cycle from 33.8 hours to a record low 33.0 hours--the labor input equivalent is another 2.4 million jobs lost.

• The number of permanent job losses this cycle (unemployed but not for temporary purposes) increased by a record 6.2 million. In fact, well over half of the total unemployment pool of 15.7 million was generated just in this past recession alone. A record 5.6 million people have been unemployed for at least six months (this number rarely gets above two million in a normal downturn).

• The longer it takes for these folks to find employment (and now they can go on the government benefit list for up to two years) the more difficult it is going to be to retrain them in the future when labor demand does begin to pick up.

• Not only that, but we have a youth unemployment rate now approaching a record 20%. Again, this is going to prove to be very problematic for employers in the future who are going to be looking for skills and experience when the boomers finally do begin to retire.

So even if the recession is officially declared over one of these days, many Americans could be left out in the cold.


Even if we experience a recovery, it may be weak. Atlanta Fed President Dennis Lockhart said last year, The economy is stabilizing and recovery will begin in the second half (of 2009). The recovery will be weak compared with historic recoveries from recession. The recovery will be weak because the economy must make structural adjustments before the healthiest possible rate of growth can be achieved.

Lockhardt based his comments, in part, of work from the Blue Chip Economic Indicators, which which reports survey results from America's leading business economists.


The points within the red circle represent all previous postwar recessions, and they form a nice, neat, easily discernible pattern. That is, the pace of growth in the first year after a recession has, in our history, been reliably related to how bad the recession was. The deeper the recession, the faster the recovery.

Within the blue circle (from top left of the circle to bottom right), the points represent the 10 lowest forecasts of the most optimistic members of the 50 Blue Chip forecasting panel, the panel's consensus (or average) forecast, and the 10 highest forecasts of the most pessimistic panel participants.

According to David Altig, senior vice president and research director at the Atlanta Fed, Either we are about to continue making history—and not in a good way—or current guesses about the medium-term economy are way too pessimistic.

Finally, I invite you to examine the recent commentary by Pimco's Mohamed El-Erian, head of the premiere bond fund company in the world.

He says inconsistencies that the market faces include:

• The tax on bailed out banks that President Obama announced Thursday and its effects on their ability to lend,
  
• Long-term unemployment issues and the difficulty in fixing them due to the federal budget deficit, and
  
• Weaknesses with sovereign balance sheets.