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Unemployment Armageddon
According to the minutes of the latest Fed meeting, their staff economists believe that weaker than expected economic growth will result in "the projected path of the unemployment rate rising more steeply into early next year before flattening out at a high level over the rest of the year." An artist's conception of unemployment growing steeply all the way through the first quarter of 2010 is shown below. I sure hope the Fed economists are just kidding about this.
Surely an artist, with an
Surely an artist, with an eye for a graceful curve, would have drawn that line much closer to vertical.
just kidding?
As a former Fed economist, I can tell you that kidding isn't in their DNA on these matters. The graph probably overstates the damage, but if the unemployment rate continues to be a lagging economic indicator - and I'm not willing to bet a lot on that - then the current declines in sales, industrial production and GDP would mean that the unemployment rate would be increasing substantially for the rest of this year and into early next year at a minimum. "Rising more steeply" is the part where I think the case is - hopefully - overstated. Many businesses appear to have been much more aggressive in cutting jobs early in the downturn. That should mean that job losses later will be somewhat less than typical. Still, I'm betting on the unemployment rate topping out just over 10 percent so I guess that makes me relatively optimistic.
Unjustifiably pessimistic.
I think your graphic curve is unjustifiably pessimistic. If you assume some sort of a gradual bend towards leveling off in early 2010 (and I interpret leveling off to mean the unemployment rate levels off -not the rate of change of the unemployment rate), then you would hit a plataeu near 10% -or a bit more for 2010. IMO, that is a better intrepretation of what they were saying. Of course the economy won't necessarily follow the current predicition, our actual milage may differ.
My husband was laid off
My husband was laid off three weeks ago, and--you'll just have to take my word for this--if people of his ability, conscientiousness and skill are being laid off, then our economy is in big, big trouble. I'm predicting unemployment rates will hit 15%.
Since the Reagan years, businesses have fancied that they can protect their bottom line by laying people off. But if there aren't enough jobs out there for people to find new positions (and keep in mind those millions of jobs that were NOT created during the Bush years) then every person laid off means that the economy will contract just a little bit more, businesses will continue to worry about their bottom line and more people will be laid off. It is a vicious cycle.
The graph is pessimistic, but
The graph is pessimistic, but I can't see how it would be 'unjustifiably' pessimistic if its purpose is to depict what the minutes of the Fed meeting appear to say.
The crucial point is what the 'more' in 'more steeply' refers to. If that was formulated with the half percent rise for the month of February in mind (which is a pretty likely scenario), another eight or nine months "before flattening out over the rest of the year" would indeed mean topping above 12%, possibly clearly more than that, in late 2010.
Even if the 'more steeply' is relative to a previous forecast which predicted a slower rise in unemployment, the meaning wouldn't necessarily be more positive. As long as the Fed expects no leveling off before beginning of next year, a plateau of approximately 10% sounds awfully optimistic. As do predictions of an easy Democratic election victory in November 2010.
People who believe that the worst is over, or that the bottom is near, may be in for a rude reality check.
And Nouriel Rubini is right: Jim Cramer is a bloody buffoon.
Kevin -- I'm happy to say
Kevin -- I'm happy to say you're reading the report incorrectly. It compares the Staff's current projection with the Staff's prior projection.
"The staff's projections for real GDP in the second half of 2009 and in 2010 were revised down, with real GDP expected to flatten out gradually over the second half of this year and then to expand slowly next year as the stresses in financial markets ease, the effects of fiscal stimulus take hold, inventory adjustments are worked through, and the correction in housing activity comes to an end. The weaker trajectory of real output resulted in the projected path of the unemployment rate rising more steeply into early next year before flattening out at a high level over the rest of the year. The staff forecast for overall and core personal consumption expenditures (PCE) inflation over the next two years was revised down slightly. Both core and overall PCE price inflation were expected to be damped by low rates of resource utilization, falling import prices, and easing cost pressures as a result of the sharp net declines in oil and other raw materials prices since last summer."
So what they're talking about is "more steeply" than the staff's prior report. It's not talking about the first derivative of the curve. Thank goodness.
State, municipal and school
State, municipal and school district layoffs are just beginning. The cutting of these jobs will accelerate private sector layoffs.
My husband was laid off
Not to worry. His job can be offshored or taken by an immigrant much more economically.
I'm pretty sure U3 will
I'm pretty sure U3 will never be allowed to get much over 12%, due to the birth/death adjustment, the fake jobs creation adjustment, and the 'not really trying very hard' adjustment.
U6, on the other hand, should top out around 22% (Octoberish) as a middle path prediction.
max
['Basically the numbers of newly unemployed will start to shrink 'round September due to running out of people to fire. I expect it to spike again in January when the weak Christmas figures come in.']
there will be no unemployment bubble
There will be no unemployment bubble. The slope of the unemployment curve can become almost vertical without peaking and then falling with a similar slope, unlike the graphs for home and oil prices. There is no economic limit for unemployment.
Tsk tsk -- pesky graphers
As a technologist and purveyor of graphical information, I'm appalled at the lack of ethics displayed when an x-y graph artificially emphasizes a trend by not including the origin of the y-axis.
Despite the legislative pushes to define the transcendental value PI as "exactly 3.1," it remains true that the number "four" is NOT the same as the number "zero" -- from the graph above it appears that unemployment will more than triple, given the false y-axis origin, before flying out into low-Earth orbit.
I am commensurately appalled that the otherwise-venerable Rachel Maddow Show allowed this same sort of unethical display on her show, with the extra-painful kicker being a "zero" labeled on what was realliy the "four" line. At least that tomfoolery wasn't tried here, in what passes for a "print media" I suppose.
In any event, even if the graphical truth doesn't quite show as much of a trend as you might want it to show, I think we'd all prefer it anyway. Thanks in advance.