I'd Sure Love to Work

The unemployment rate increased to 9.8% in September. This is a measure of those actively seeking employment. But what about all those who have "given up searching?"

You may recall from my April 14 blog (it would be a good review) that U-6 is the statistical measure of underemployment.

This is unemployment rate plus people who have not actively looked for work in the past month because they got discouraged and gave up.

U-6 also measures the number of people who aren't able to find enough work, i.e. people who are working part-time when they want to work full-time. They are called the under-employed.

This underemployment rate recently reached 17%.


You can see the steady rise from the above graphic--it is also useful to put this into a longer-term perspective. Here you can see the underemployment rate has increased remarkably during this recession. (These are the same numbers for 2009--but when graphed over a span of 15 years, it provides a much different picture than the latest 16 months of data.)


It is also instructive to couple this with another measure...that of hours worked per week. My daughter, Sarah, before landing a "full time" job in Stevens Point, WI worked for a publishing company--and even though that was also a "full time" job, she was required, just like all co-workers, to take off a week per month. That was to help the company make ends meet. In doing so, at least she and other employees were gainfully employed.

A Jobless Recovery

It is certainly possible to recover from a recession--and still have unemployment on the rise. Indeed, the unemployment rate is a classic lagging indicator in economic growth and recover.

In this most recent recession, we may have the mother of all jobless recoveries. Just look at where things stand at the moment.


Do you remember one of the Administration's goals--from my last blog?

According to the Romer report, Certain industries, such as construction and manufacturing, were likely to experience particularly strong job growth.

We just learned from the Bureau of Labor Statistics (BLS):

• Since December 2007, employment in construction has fallen by 1.5 million.

• Employment in manufacturing has contracted by 2.1 million since the onset of the recession.
  

In a recent Advance Realty and Rutgers report, America’s New Post-Recession Employment Arithmetic, there are several ugly conclusions:

• The Great 2007–2009 recession is the worst employment setback in the United States since the Great Depression.

• In the twenty months from December 2007 (the start of the recession) to August 2009 (the last month of available data as of this analysis), the nation lost more than 7.0 million private-sector jobs.

• The recession followed a very much-below-normal economic expansion (November 2001–December 2007) that was characterized by relatively weak private-sector employment growth of approximately 1 million jobs per year. Recall from my previous post that the $787 billion stimulus package was supposed to create almost all new jobs in the private sector.

• As of August 2009, the nation had 1.3 million (1,256,000) fewer private-sector jobs than in December 1999. This is the first time since the Great Depression of the 1930s that America will have an absolute loss of jobs over the course of a decade.

• Total “employment deficit” could approach 9.4 million private-sector jobs by December 2009.

Here is the real hurt: The “Harsh Arithmetic of the Employment Deficit” means that we will not likely return to 2007 employment levels until 2017.

Unemployment Rate Keeps Going Up

Earlier this year (January 21 blog) I reported on the research done by Christina Romer, chair for the Council of Economic Advisors. On January 9 she released a 14-page document on "The Job Impact of the American Recovery and Reinvestment Plan."

Here were the goals--which by the following month lead to the passage of the $787 billion economic stimulus plan:

• Create 3-4 million jobs by the end of 2010.

• Certain industries, such as construction and manufacturing, were likely to experience particularly strong job growth.

• More than 90 percent of the jobs created would be in the private sector.

A graph was produced by this council--and it forms the basis for comparing what was estimated then--and what has occurred now with regard to unemployment in the US. It is not a healthy picture.


In early February, the US unemployment rate stood at 7.6%. Congress and the Obama Administration were working on a stimulus bill that would seek to cap unemployment at 8 percent. Unfortunately for many, many Americans those rosy predictions have not panned out.

Indeed, there was question at the time whether this stimulus package would indeed work. Do you remember the issues??

• 26% of the proposed spending would take place after 2010--probably long after the recession has ended. Now while the current recession has not been declared "over," it appears the US will resume GDP growth--the key indicator that we've exited this latest recession.

• There was considerable pork barrel spending that had nothing to do with job creation.

  I might add that if not technically "pork barrel," there definitely has been spending that does not stimulate job creation in any significant fashion...and also money has been spent just to spend the money, while more legitimate projects will not be shovel ready until engineering work is completed in the future.

  If you would like some documented support, please review my June 30 blog article.

• More time was needed to debate this 1,071 page bill--and it was one of the first in a series of bills in Congress that were never fully read by legislators.

This blog article sets the stage for other articles that I will release in the near future.

Creating Money Out of Thin Air

The Federal Reserve pumped an extra $1 trillion into the financial system by purchasing Treasury bonds. They did this earlier this year. This represented a significant effort to bolster the economy--and help the US get out of its recession.


This amounts to creating vast new sums of money out of thin air--just as this man standing next to $1 billion in $100 bills sees.


This action makes the Fed a buyer of long-term government bonds rather than the short-term debt that it typically buys and sells to help control the money supply.

The idea is to encourage more economic activity by lowering interest rates, including those on home loans, and to help the financial system as it struggles under the crushing weight of bad loans and poor investments.

The Fed’s action is an expansion of its effort to bypass the private banking system and act as a lender in its own right.

There are risks, however, in doing this. It could dilute the value of the dollar and set the stage for future inflation.

The Fed rarely buys long-term government bonds. The last time was nearly 50 years ago under different economic circumstances when it tried to reduce long-term interest rates while allowing short term rates to rise.

But these are trying times. The US is in a severe recession. Job losses are high and lost housing wealth is significant.

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability, says a Fed spokesman.