Unemployment, the Cold Hard Truth
According to the Bureau of Labor Statistics 8.5 million jobs have been lost during the recent recession including:
– 1.5 million in construction
– 2.1 million in manufacturing
– 1.1 million in clerical and administrative
In a speech to the Senate Budget Committee on the state of the economy, Federal Reserve Chairman, Ben Bernanke cautioned that with only 1.1 million jobs recovered during 2010, it would likely be 4-5 years before we see a significant reduction in unemployment.
According to Bill Gross, CIO of Pimco, the published unemployment rate of 9.4% is really more like 16%-17%, when you consider the number of unemployed individuals that have stopped looking for jobs. (260,000 in December alone)
In the Liscio Report, the majority of the 113,000 jobs that were generated in December that brought the unemployment rate down to 9.4%, were generated in the “eat, drink, gamble and get sick” sectors of the economy. Many of the jobs in these sectors, Leisure, Hospitality and Health-Care are low paying jobs that reflect underemployment, where over-qualified job candidates accept lesser positions just to generate income.
And how about the prospects for a continued drop in unemployment?
Oscar Schafer, Managing Partner of OSS Capital Management in New York, points out that:
– With a population of 220 million in the U.S. in the 1970’s, there were 20 million manufacturing jobs.
– With a population of 320 million now, there are only 12 million manufacturing jobs.
– Because it is much cheaper to produce goods in China, manufacturing jobs will continue to be lost, keeping the unemployment numbers high.
David Rosenberg of Gluskin Sheff points out 3 key areas of concern for future unemployment:
– The work-week has remained at 34.3 hours for the third week in a row. This is a leading indicator of future labor demand.
– State & Local Governments are in a major downsizing mode because of major cuts in revenue, with 20,000 jobs cut last month, a trend that will continue this year. This group comprises 15% of the labor pool.
– The average hourly earnings have been almost flat for the past two months and could even lead to a contraction of real personal income in 2011.
Also, consider that because of stream-lined efficiency in manufacturing, despite the 2 million jobs lost in manufacturing during the recession, output is almost at the same level it was in 2007.
Why is all of this information important? Unemployment has a direct impact on the housing market recovery, which has a direct impact on the economic recovery, which has a direct impact on future hiring. It’s a vicious cycle known as Reverse Negative Feedback Loop.
The ultimate result of this slippery slope is likely to be a recovery that is more like an elongated U-shaped recovery, or even an L-shaped Recovery.