May 10

The Bad News and the Worse News on Unemployment.

( – promoted by buhdydharma )

The April employment numbers are out. The Broad Based (U6) unemployment figures … the best measure of the “total people available to take on more work” … give, on the one hand, bad news, and on the other hand, worse news. This is, of course, treated as “good news”, because the expectation was that it would be on the one hand worse news and on the other hand catastrophic news.

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U6 seasonally adjusted JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
2008 9.0% 8.9% 9.1% 9.2% 9.7% 9.9% 10.3% 10.9% 11.2% 12.0% 12.6% 13.5%
2009 13.9% 14.8% 15.6% 15.8%

This is not the “headline” rate, or U3, which takes everyone working any hours at all as “employed”, even if they want more work, and anyone who has not actively sought work in the last four weeks is dropped out altogether.

Instead, its the “broad” or “U6” rate, where those who express an interest in working who have looked for work in the past year are included, as well as those who are “involuntary part-time” employees. So the U6 series is the best measure of the “total people available to take on more work”.

Also note that BLS unemployment statistics are not determined by the numbers of people drawing unemployment … it includes a broad range of data sources, including an ongoing telephone survey.

In terms of changes in the “U6” unemployment rate, this is:

Change in U6 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
2008 -0.1% +0.2% +0.1% +0.5% +0.2% +0.4% +0.6% +0.3% +0.8% +0.6% +0.9%
2009 +0.4% +0.9% +0.8% +0.2%

The bad news is, of course broad based unemployment is still rising. The worse news is that it is more than halfway to the “depths of the Great Depression” benchmark of around 1 in 4 out of work.

Even more, the populace has been trained to accept as “normal” unemployment rates what would have been considered an economic emergency back in the 1960’s.

What’s the Broader Picture?

Now, this is not firm evidence that the recession is going to bottom out this month or next. Even if the May numbers showed a drop in broad unemployment, that would not be definite evidence that we have hit bottom … and the April numbers could turn out to be nothing but the lull in an ongoing storm, if the May numbers are another increase of 0.8% or 0.9%.

So there is still tremendous uncertainty about the short term situation.

However, each month that passes increases the certainty about the need for a Brawny Recovery.

When the economy gets going, we cannot afford another recovery gimmicked on the back of dubious debt, like the 2001 to 2007 business cycle. Instead, it has to be a recovery built on the back of doing and making useful things and, even, making things that can be used to make useful things.

Otherwise, we are in for something quite like a “Medium Big Depression”.

The fragility of our finance sector was a long term problem due to reckless decisions to remove government regulation of the finance sector, and banks in particular. A century of experience with an industrial monetary production economy taught that an unregulated financial finance sector leads to one financial crisis after another. A half century of experience after the 1930’s taught that a well-regulated finance sector is remarkably resilient in the face of quite substantial challenges. And so, our elected officials, on the various payrolls of the various banks and other financial firms, picked “unregulated, thanks”.

But it was no accident that the fragility was revealed last year … we were in an oil price shock by 2007, finally passing the previous (inflation adjusted) peak crude oil price of around $80/barrel, and the surging to $140/barrel before financial and economic collapse slashed at demand.

“Useful” = Energy Efficiency and Domestic Renewable Energy Harvest

The Achilles Heel of our Economy is our exposure to the risk of an oil price shock.

And its our economy in particular that is exposed. While other large economies have had policies to reduce their exposure to oil price shocks, and have been actively pursuing new ones, we had policies to increase our exposure to oil price shocks. Policies like a 25% tariff on imported trucks compared to a 2.5% tariff on imported cars, bribing our auto makers to design trucks that pretended to be cars and then market the benefits of driving trucks that pretended to be cars to the American public.

So if global recovery comes, with it will come higher crude oil prices, and the economy most likely to get hit the hardest by those prices is the US economy.

For the medium term, we will need to “keep on stimulating” to keep a recovery going in the face of that headwind. And for the longer term, unless that stimulus is reducing our dependence on imported energy, it will simply be unsustainable.

There is no “prosperity, but never mind improved energy independence” option here.

We do have choices:

  • Seriously pursue substantially improved energy independence
  • Tolerate a lost decade or more as the US economy shifts from recession to stagnation to recession to stagnation
  • … Or, the US$ loses its standing as a global reserve currency, exchange rates begin to fall, prices of imported commodities and manufactured goods that we are dependent upon begin to rise, fueling further falls in exchange rates, fueling further price increase … in other words, the hyperinflationary spiral familiar in economic history from the Confederate States in the 1860’s to Brazil in the 70’s and Argentina in the early years of this decade.

The newspapers will be full of “green shoots” stories. Indeed, there will be places in the blogosphere where there will be an effort to promote “green shoots” stories “to support the Obama administration”.

But green shoots in the real world are always a bit fragile. And if these metaphorical green shoots are hit with the frost of a succession of oil price shock recessions, or the wildfire of a hyper-inflationary breakdown of the US$, “green shoots” will end up being the same ironic joke as “prosperity is just around the corner”.

Midnight Oil: (You Wouldn’t) Read About It


The bosses want decisions, the workers need ambitions

There won’t be no collisions when they move so slow

Nothing ever happens, nothing really matters

No one ever tells me so what am I to know

You wouldn’t read about it, read about it

Just another incredible scene, there’s no doubt about it

7 comments

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    • BruceMcF on May 10, 2009 at 10:49 pm
      Author

    But, dontcha know, now I am repeating myself.

    • Edger on May 11, 2009 at 2:24 am

    since nobody else in the world is ever going to get anywhere near the oil in Iraq or mess with the pipelines through Afghanistan, and there’s another huge energy prize just waiting for the taking, along with the Chinese built port of Gwadar.

    Next up. Pakistan. Before the Chinese turn Gwadar into a Naval Base to “threaten” the Arabian Sea and the Indian Ocean.

    Oh, and I hear the politicians and the Pentagon have a bridge for sale too. 🙁

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