Scary chart of the day: unemployment

Actually the falling employment/population ratio:

David Leonhardt explains the graph:

By late 2010 and early this year, the situation was improving again — only to slide back again in recent months, this time because of gas prices, Europe (again) and general post-crisis uncertainty (again). The share of adults with jobs, 58.2 percent, is now tied with its low point since this recession began. It has not been lower since 1983. ...
Government officials, especially those at the Fed, have proven too optimistic again and again throughout the crisis. In recent months, they have been saying that they didn’t need to take further action because the economy would soon heal on its own. What do they do now?

What the heck can be done, right?

President Clinton's Chair of the CEA, Laura Tyson, writes:

pair temporary fiscal measures targeted at job creation during the next few years with a multiyear, multitrillion-dollar deficit reduction plan that would begin to take effect once the economy is closer to full employment. Pass both now as a package.
Current signals from Washington indicate that this way out will be not taken: instead, partisanship and politics will trump logic and premature fiscal contraction will undermine the already anaemic recovery. Even worse, a political stalemate over the debt limit could precipitate a financial crisis and necessitate immediate large cuts in government spending that would tip the economy back into recession, driving the unemployment rate into double digits.

Paul Krugman echoes the same point:

The situation cries out for aggressively expansionary monetary and fiscal policy. Instead, however, all the political push is in the opposite direction.

A reminder on the magnitude of the problem:

The unemployment rate — measured by a different government survey, and based on how many people are without jobs but are actively looking for work — ticked up to 9.2 percent in June, compared to 9.1 percent in May (also not a statistically significant change).
There are now 14.1 million workers who are looking for work and cannot find it; the figure nearly doubles if you include workers who are part-time but want to be employed full-time, and workers who want to work but have stopped looking.

From the other end of the political spectrum, here is Reason's explanation:

America: we will flatten you ... and then sell to you :)

The Stewart-Zakaria economic recovery plan :)

The Daily Show - Fareed Zakaria
Tags: Daily Show Full Episodes,Political Humor & Satire Blog,The Daily Show on Facebook

Chart of the day: job loss in America

Note on this chart at the source: Horizontal axis shows months. Vertical axis shows the ratio of that month’s nonfarm payrolls to the nonfarm payrolls at the start of recession.

So, how many more jobs ought we to be adding?

There are 6,955,000 fewer nonfarm payroll jobs today than there were when the recession officially began in December 2007. If the pace of job growth from April (244,000 jobs added) continues each month going forward, it will take 29 months before we have the same number of jobs as we had when the recession began.
And we should have more jobs than we had before the recession began. After all, the population is growing, and more and more Americans reach working age each month.

What, me worry?

The unemployment situation is grim.

A couple of weeks ago Robert Reich wrote:

125,000 are needed just to keep up with the increase in the population of Americans wanting and needing work. And 300,000 a month are needed — continuously, for five years — if we’re to get back to anything like the employment we had before the Great Recession.

This is simply awful. Just awful.  I can't begin to understand how the unemployed are dealing with this situation:

• There are 7.7 million fewer payroll jobs now than before the recession started in December 2007.
• Almost 14 million Americans are unemployed.
• Of those unemployed, 6.2 million have been unemployed for six months or more.
• Another 8.4 million are working part time for economic reasons, 
• About 4 million more have left the labor force since the start of the recession (we can see this in the dramatic drop in the labor force participation rate), 
• of those who have left the labor force, about 1 million are available for work, but are discouraged and have given up.

Unemployment data leave economists puzzled. Can they explain anything at all?

For corporate America, the Great Recession is over. For the American work force, it’s not. 

No, this is not a quote from Robert Reich, who has consistently been trying to get policymakers to focus on the horrendous joblessness of the economic recovery.
That was a quote from the NY Times' business columnist, David Leonhardt, who writes:

The unemployment rate is higher in this country than in Britain or Russia and much higher than in Germany or Japan, according to a study of worldwide job markets that Gallup will release on Wednesday. The American jobless rate is also higher than China’s, Gallup found. The European countries with worse unemployment than the United States tend to be those still mired in crisis, like Greece, Ireland and Spain.
Economists are now engaged in a spirited debate, much of it conducted on popular blogs like Marginal Revolution, about the causes of the American jobs slump. Lawrence Katz, a Harvard labor economist, calls the full picture “genuinely puzzling.”

Leonhardt notes that employees having a lot more power in Western Europe or Canada, compared to here in the US, where employers reign supreme, might be a significant factor.  Whatever the reasons might be, I agree with him that:

The jobs slump has become too severe to disappear anytime soon. It will be part of the American economy and American politics for years to come. But there is no reason to treat it as a problem that’s immune from solutions. For starters, it would be worth figuring out what other countries are doing right.

Meanwhile, here in Oregon, unemployment rates don't want to budge:

Oregon lost 1,800 payroll jobs in December as the unemployment rate held flat at 10.6 percent, essentially unchanged for more than a year. 

Just awful.  A leading economics blogger, and a fellow Oregonian, Mark Thoma, has a timely column on the urgency to reinforce America's social safety net

2010: the year of the unemployed :(

I have blogged enough about unemployment and the jobless recovery.  I wish this topic would go away, as much as the two wars would end.  Nothing seems to change :(  As Slate notes:

by most yardsticks, 2010 was the worst year for jobs since the Great Depression. The year's average unemployment rate will clock in at about 9.7 percent—higher than last year's 9.3 percent and tied for the highest annual rate since the government started keeping official counts in 1948. For all of 2010, in any given month, about 15 million Americans—the population of New England—were looking for work. 

 Of course, there is more than those counted under the unemployment rate:

Underemployment—that's the "official unemployed," plus people in part-time or temporary positions looking for full-time work, plus people discouraged from the labor market and no longer looking—totaled as many as 25 million.

I wish them all a better year.

Worrisome chart of the day: unemployment

Calculated Risk, the source for the chart as well, notes:

this recession is by far the worst recession since WWII in percentage terms, and 2nd worst in terms of the unemployment rate (only the early '80s recession with a peak of 10.8 percent was worse)

The Great Recession and the youth

Every once in a while, when highlighting the rapid economic transformations across the world, I remark to students that it is not longer their grandfathers' world. Not even their mothers' world. And that they ought to be smart about their economic futures. And sometimes I take this to the next step and tell them, "you are screwed!"  And then, of course, give them what I think are the strategies to avoid getting screwed.

I suspect that most of them probably laugh this off because, after all, I too say all these with a big smile. But, a few students get the seriousness that lies underneath the veneer of humor.  To them, I now have one more piece of evidence: the chart below:

This is from Brookings' "The Hamilton Project" whose "most striking finding is that America’s youngest workers have been hit hardest by the Great Recession."

So, why this disproportionate impact?  The explanation makes sense to me:
"During the current recession both job openings and the number of people quitting their job (“quits”) plunged to extremely low levels. Very few older workers have left their jobs and are instead working longer and retiring later—perhaps in response to the recession’s effect on retirement savings and wealth. For younger Americans, such as new high school and college graduates, this has meant fewer opportunities to find work."

And even when openings come up, the experienced-but-now-jobless older person beats out the young.  So, is this temporary?  Now that the NBER has declared that the Great Recession ended last June, will conditions become better for the youth?  Not so fast:

According to one study (Kahn 2010), young people graduating from college during today’s severe recession will earn approximately 17.5 percent less per year than comparable peers graduating in better labor markets. This lower wage effect is highly persistent, fading away only after 17 years of work.

What does this mean in terms of lost income? For the average college graduate this year, this translates into approximately $70,000 (in today’s dollars) in lost earnings over the next decade. For the 2008, 2009, and 2010 classes combined that amounts to over $330 billion in lost earnings over 10 years. The projected losses are even larger for graduates who cannot find a job upon graduation.

There is a huge job-gap that might take a very long time to get filled (or maybe this is the new economic structural reality?)

And thus begins a new academic year :(

Maybe Bobby McFerrin was right with his "Don't worry, be happy"

More worries about unemployment

Say, this chart on the percentage decline in employment during recessions (from Paul Krugman) ought to cheer you up!

(editor: this is no place for sarcasm.  Get to the point.)

Ok, as Krugman notes, this certainly seems to be the worst of times.  Just awful.

Robert Reich, who has consistently and loudly worried about the jobless recovery, writes:

GM now sells more cars in China than it does in the US, but makes most of them there. The company now employs 32,000 hourly workers in China. But only 52,000 GM hourly workers remain in the United States – down from 468,000 in 1970.

GM isn’t just hiring low-tech assembly workers in China. Last week the firm broke ground there on a $250 million advanced technology center to develop batteries and other alternative energy sources.

You and I and other American taxpayers still own over 60 percent of GM. We bought GM to save GM jobs, remember?

Well, worry no more, Professors Krugman and Reich.
It turns out that the high unemployment is "primarily the result of millions of Americans just completely blowing their job interviews," according to the finest news source in the country, which adds:

The Labor Department confirmed their statistics don't take into account the estimated 20 million citizens who were unable to get interiews in the first place because of formatting errors in their resumés, or cover letters that slightly exceeded one page.

Crap!  Can we do something about this?  I mean, isn't this why we pay taxes?  Fortunately, the president and his administration do have a plan:

"My administration remains fully committed to putting citizens back to work by making sure they show up at least 15 minutes early to their interview and never badmouth a previous boss," said Obama, flanked by unemployed Americans during an address from the White House Rose Garden. "Our new 'Nail the Interview, Score the Job' initiative will help regular Americans like Paul and Tracy here remember that they should prep ahead of time by learning a few things about the company they want to work for."

"And that little things," he continued, "like making sure your socks match, matter."

OMG chart of the day on unemployment

The unemployed continue to be jobless for weeks and weeks on, as a contrast to past recessions. (ht)

At some point, this alone could break the economy, right?  I mean, a rational explanation for why this is not a bad omen is ....???

One possibility is that this high rate of unemployment will become the new normal for the US economy.  In other words, something that Western European economies have known for the longest time.
But, there is one major difference between us and them: we do not have the kind of safety net that Western European governments provide their peoples.

Surveying the economic scene, Paul Krugman writes:

this past Monday Jon Kyl of Arizona, the second-ranking Republican in the Senate, was asked the obvious question: if deficits are so worrisome, what about the budgetary cost of extending the Bush tax cuts for the wealthy, which the Obama administration wants to let expire but Republicans want to make permanent? What should replace $650 billion or more in lost revenue over the next decade?

His answer was breathtaking: “You do need to offset the cost of increased spending. And that’s what Republicans object to. But you should never have to offset the cost of a deliberate decision to reduce tax rates on Americans.” So $30 billion in aid to the unemployed is unaffordable, but 20 times that much in tax cuts for the rich doesn’t count.

In such economic times, the fact that I have a job is more than enough reason to celebrate, even though it is at a place where I have been excommunicated by those faithful to the union leadership and unionism.  I feel terrible for those millions who are looking for something productive to do.  And even more for those who have given up.

Chart of the day, on jobs: OM"f"G :(

It is not at all clear to me how we are going to crawl out of this hole soon.
I worry that we are merely one incident with profound impacts away from a complete economic and social tailspin.  Here is to hoping that such a nightmare scenario will not come about.
What is even more worrisome is the following chart (both charts from Calculated Risk)

"there are a record 6.763 million workers who have been unemployed for more than 26 weeks (and still want a job). This is a record 4.38% of the civilian workforce. (note: records started in 1948). It does appear the increases are slowing ..."

The devastating effects on career and personal lives if and when one is unemployed for this long, and still looking for jobs somewhere .... Am all the more thankful for the protected bubble within which I operate ...

Robert Reich is concerned that we are getting very close to a second recessionary dip:

The only reason the economy isn’t in a double-dip recession already is because of three temporary boosts: the federal stimulus (of which 75 percent has been spent), near-zero interest rates (which can’t continue much longer without igniting speculative bubbles), and replacements (consumers have had to replace worn-out cars and appliances, and businesses had to replace worn-down inventories). Oh, and, yes, all those Census workers (who will be out on their ears in a month or so).

But all these boosts will end soon. Then we’re in the dip.

David Leonhardt writes that new federal spending is necessary, but it:

needs to be accompanied by something more credible than Augustine-like vows of future parsimony. It should be paired with substantive cuts to continuing policies, like subsidies for oil companies and agribusinesses, outdated weapons systems, NASA’s moon program and at least some Bush tax cuts, among many other things.
That is the right economic strategy. It’s probably the right political one, too. It shows serious concern about both jobs and the deficit.

So, is the economy doing better or ...?

Same tea leaves ready by different people yields different results. 
Compare Robert Reich's op-ed in the WSJ with Daniel Gross' essay in Newsweek and you might even think that they are talking about two different planets.  And it is not that either one is a hardcore Republican.  Reich is a lefty Democrat, and Gross always has come across as the DLC Democrat type.
First: here is Gross:

the long-term decline of the U.S. economy has been greatly exaggerated. America is coming back stronger, better, and faster than nearly anyone expected—and faster than most of its international rivals. The Dow Jones industrial average, hovering near 11,000, is up 70 percent in the past 13 months, and auto sales in the first quarter were up 16 percent from 2009. The economy added 162,000 jobs in March, including 17,000 in manufacturing. The dollar has gained strength, and the U.S. is back to its familiar position of lapping Europe and Japan in growth. Among large economies, only China, India, and Brazil are growing more rapidly than the U.S.—and they're doing so off a much smaller base. If the U.S. economy grows at a 3.6 percent rate this year, as Macroeconomic Advisers projects, it'll create $513 billion in new economic activity—equal to the GDP of Indonesia.

Since he wrote this, the DJIA finished the day at 11,006
Reich writes:

Some economic cheerleaders say rising stock prices are making consumers feel wealthier and therefore readier to spend. But most Americans' biggest asset is their homes. The "wealth effect" is felt mainly by the richest 10%, whose net worth is largely stocks and bonds. The top 10% accounted for about half of total national income in 2007. But they were only about 40% of total spending. A vigorous jobs recovery can't be based on 40% of what was spent before the economy collapsed.

 Reich worries about the job losses, and the economy's inability to create new ones, fast:

Since the start of the Great Recession in December 2007, the economy has shed 8.4 million jobs and failed to create another 2.7 million required by an ever-larger pool of potential workers. That leaves us more than 11 million jobs behind. (The number is worse if you include everyone working part-time who'd rather it be full-time, those working full-time at fewer hours, and people who are overqualified for the jobs they're in.) This means even if we enjoy a vigorous recovery that produces, say, 300,000 net new jobs a month, we could be looking at five to eight years before catching up to where we were before the recession began.

Gross, any response to this one?

All well and good, the skeptics note, but we've got a long way to go. To recoup the 8.2 million jobs lost since December 2007, it'll take four years of growth at 170,000 jobs per month. And by definition, it's hard to identify the next transformative economic force—the next steam engine or interstate-highway system. White House economic adviser Larry Summers tells a story about the economic summit in Little Rock after the 1992 election. In the thousands of pages of briefing papers and policy briefs, one word didn't appear: Internet.

I will stop here, before I drive myself crazy :)  Can you imagine how much more incomprehensible this will all become if I added in here a truly economic conservative's analysis as well?

The Middle Eastern financial earthquake from Dubai

A few days ago, I told my colleague that we are only an event away from a double-dip-recession .... the much feared w-shaped recession and recovery. 

I thought that the second dip would result from an event in the Middle East--Iran, or the Israel-Palestine issue, or Iraq.  

But, could Dubai's sovereign default reverse any recovery and slide us down a second recessionary dip?  

What sayeth Krugman?

First, there’s the view that this is the beginning of many sovereign defaults, and that we’re now seeing the end of the ability of governments to use deficit spending to fight the slump. That’s the view being suggested, if I understand correctly, by the Roubini people and in a softer version by Gillian Tett.
Alternatively, you can see this as basically just another commercial real estate bust. Either you view Dubai World as nothing special, despite sovereign ownership, as Willem Buiter does; or you think of the emirate as a whole as, in effect, a highly leveraged CRE investor facing the same problems as many others in the same situation.
Finally, you can see Dubai as sui generis. And really, there has been nothing else quite like it.
At the moment, I’m leaning to a combination of two and three. For what it’s worth (not much), US bond prices are up right now, suggesting that the Dubai thing hasn’t raised expectations of default.
Anyway, we continue to live in interesting times.

Horrible times.  If only our collective madness hadn't found it worthwhile to invest a gazillion dollars in crazy developments

Quote of the day

“If the long-term issue is entitlement reform, ... the fact that the political system cannot say no to $250 checks to elderly people is a bad sign.”
From David Leonhardt's piece in the NY Times.  The quote itself is from Joel Slemrod, a University of Michigan economist.

Recovery, or "Obama Bubble"?

For some reason, the war in Afghanistan that Bush, the Congress, the American public, and NATO launched back in 2002 is now referred to as Obama's War!  How bizarre is that!!!  All because Candidate Obama kept referring to the Afghanistan War as the "war of necessity" ....

Anyway, that moniker has stuck.  No wonder then that Sean Collins refers to the jobless recovery as Obama bubble.  He writes:

unless the underlying conditions for investment are restored, government money is likely just to pump up further the re-emerging bubbles. Even if the Obama administration recognises this trend, it is likely that lacklustre economic growth and high unemployment will render them reluctant to tighten monetary and fiscal conditions too much.
The unspoken issue at the root of Obama’s dilemma is that the economy’s engine – private non-financial industry - is not investing and innovating. And his response so far is part of the problem, not the solution.

Why does he say so? Because:

the latest rise in the stock market is more of an indication that the finance bubble is returning rather than a harbinger of broader economic recovery. And rather than blame greedy Wall Street types for starting the party before others have arrived, this reinflated bubble has been made in Washington, DC – led by liberal Democrats in the Obama administration, who many Wall Street critics praise for saving the economy from another Great Depression.