Unemployment Hits 8.5% / The New Normal

Posted by urbandigs

Fri Apr 3rd, 2009 09:17 AM

A: I usually don't report on these numbers anymore because the financial blogosphere is filled with discussions on it, and I try to keep the focus here on Manhattan (by the way I'm checking on the total inventory widget # that seemed to drop by 600 today). But it was something that Bill Gross of PIMCO was just discussing on CNBC when talking about the jobs report and the recent rally that motivated me to write this. He said, '...we are in for a NEW NORMAL'. I don't normally plug the guy at the firm who is going to be a major beneficiary of treasury/fed actions, but in this case he is exactly right. The new world is going to be much less sexy than the world we got used to over the past five years or so, just be prepared.

First off, the unemployment rate has spiked to a 25-year high if we use the U3 measure of employment; here is the visual on that:

unemployment-8.5%25.jpg

But the U3 doesn't paint the entire picture because it excludes those who are working a part-time job but wish to work full-time and can't find one, and those disgruntled workers who simply gave up looking for a job altogether. That measure is the U6 measure, and that rate hit 15.6%. Bloomberg reports, "Unemployment in U.S. Increases to 8.5%, 25-Year High":

The U.S. unemployment rate climbed in March to the highest level since 1983 and the economy lost more than 650,000 jobs for a fourth consecutive month, a sign renewed reductions in spending might slow a recovery.

The jobless rate increased to 8.5 percent, as forecast, from 8.1 percent in February, the Labor Department said today in Washington. Employers cut 663,000 workers from staff, bringing total losses since the recession began to about 5.1 million, the biggest slump in the postwar era.
Should GM be placed into a pre-packaged bankruptcy, the unemployment rate could tick up even more with the amount of jobs lost as part of a restructuring effort tied to the automaker and the residual side effects at the suppliers, dealers, etc.. I think I am on record for expecting the U3 rate to hit mid 9% or so by years end, and peaking around 10% or so. It's highly possible I have to revise that higher.

Back to Gross's comment on the new normal. Stages 7 & 8 seem to be IN PROGRESS now of the 11 stages of the slowdown discussed last October:
STAGE 7 (Early In Process) - Economic Data: This is where we start to see confidence reports really dive, GDP really contract, Unemployment really rise, manufacturing contract, etc..Time goes slow and it feels like these lagging reports don't ever get better.

STAGE 8 (Early In Process) - Mainstreet Blues / Saving / Capacity Reductions / Budget Crises: the real pain of job losses, and the slowdown hit the people. Time slows down and it feels longer than it is. However, this time it is likely to be longer than past recessions. Saving increases, and spending decreases. This makes the economic data noted above continue for longer than expected. The cycle feeds on itself for an economy that is driven 70% by the consumer. Capacity is reduced to adjust to the slowing demand. With the slowdown comes less revenue for cities and states. Traffic volume is down a record 5.6% in August as consumers cut out unnecessary spending/driving; driving costs money. The Terminator already called for a special session as California's budget shortfall surpasses $3Bln. It would be narrow sighted to think they are the only one in trouble.
When STAGE 9 is upon us, regulation, we will see that, "The new world will be a lot less sexy than when credit was on its way to its peak." Just like Gross said this morning! Nobody likes a crisis like the one we are facing, and unfortunately the actions that are taken by treasury/fed/congress to stem this crisis could have unintended consequences that kick in right when things seem to be turning around. That is the reasoning behind STAGES 10 & 11 of the cycle. Let us be prepared.


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