Friday, September 4, 2009

The unemployment rate is awful, but that is old news

If you want to focus on the level of unemployment, the situation today looks about as bad as it's ever been. Only once in post-war history has the unemployment rate been higher, and that was in the truly painful 1982 recession, when the Fed was fighting double-digit inflation with sky-high interest rates.

But if you want to focus on what is changing on the margin, the outlook becomes much brighter. Layoffs are declining, job losses are declining, productivity is picking up, commodity prices are rising, volatility is declining, and credit spreads are declining, among many other green shoots mentioned here and elsewhere. Improvements on the margin explain why the stock market has been moving steadily higher since March, even as the unemployment rate has soared. You can't wait for the jobs numbers to turn positive to buy the market. Indeed, by the time we get positive job numbers (later this year or early next year), the market will likely be much higher than it is today.


Bill said...


Do you also think that with many more 2 income families (and thus a lot more people in the work force), an unemployment rate of 10% today is not as devastating on families as it was back in 1982?

alstry said...

I finally understand your logic. Now that the market has risen 1000 points since I first questioned your thinking.

You look at life at the margin. Alstrynomics looks at life at the foundation.

At the margin things are looking fantastic........the only question now is what happens if the foundation fails?


Scott Grannis said...

Bill: that's a good point, and I think you might be right. I think we are going to survive this, in spite of Obama's misguided policies.

Alstry: You might as well ask what would happen if terrorists blew up Washington DC with an atomic bomb. It would be bad, no doubt (though those who prefer limited government might cheer). But absent some catastrophe, I think things will continue to get better.

alstry said...


You and I are aligned on government. You have done an excellent job with your blog and your recent calls.

In life, some people can look at the situation and see something is wrong beneath the margin....however, it is only noticed when it affects the margin.

If it never affects the margin, it is clearly looking in the wrong life is lived at the margin.

If it does affect the margin, I guess it is called a black swan and history is changed forever.

Once again, congratulations on your recent work.

W.E. Heasley, CLU, LUTCF said...

Good article and points well taken.

The "at the margin numbers" are improving and certainly the market moves on those improvements.

You mention economic improvement despite misguided economic policy coming from the Administration.

The same way the market moves on improvements "at the margin", is similar to the way the Political Anger Factor, within the realm of Political-Economy, moves regarding high unemployment at the margin.

Moreover, a jobless recovery seems more and more likely. If the unemployment rate remains high and persistent, the extended length of time of high/persistent unemployment at the margin fuels an exponential increase in the Political Anger Factor regarding misguided Economic Policy.

Bill said...

Although I really do hope Obama's policies get derailed and the Democrats suffer losses in 2010, we should remember that folks were pretty mad at Reagan in '81-'82 when unemployment shot up to almost 11% and the persisted in the 9% range through '83. The Republicans lost seats in '82 and then Reagan won big when unemployment went down and the economy exploded in late '83 and '84, but before then, the pundits were writing Reagan's political obituary. I'm afraid Obama will win again if the economy is doing well and unemployment comes down significantly- and I'm not sure it won't, even with his foolish policies.

Donny Baseball said...

Oh God, alstry is back! Anyway, Scott, I talk to CEOs and CFOs all day long...they will admit that they overdid it on layoffs and they will be willing to hire modestly in 2010, but they are adamant that they will not hire aggressively again until they get some policy accommodation/certainty. They talk to their lawyers, lobbyists and Congressfolk and they are scared shitless over the wish list of what the Dems want, and feel they can, do with their unchallenged power. Things have changed drastically in just the last few months, but they will remain gunshy until the policy risk diminishes substantially. If get a gridlocked government in November 2010, then maybe you'll see some hiring. Until then, get used to 9%+ unemployment.

alstry said...


Sept. 5 (Bloomberg) -- Employers kept Americans’ working hours near a record low in August, signaling that economic growth is poised to reward companies with added profits while postponing any recovery in the job market.

The average workweek held at 33.1 hours, six minutes from the 33 hours in June that was the lowest since records began in 1964, the Labor Department said yesterday. The report also showed that while payrolls fell by the least since August 2008, the unemployment rate rose to a 26-year high of 9.7 percent.

The preconditions for gains in payrolls, including giving the army of part-timers longer hours and taking on additional temporary employees, weren’t met last month. At the same time, with economic growth forecast to resume this quarter, the figures set the stage for a surge in worker productivity and drop in labor costs that will stoke corporate profits.


If Q3 earnings are stoked due to lower labor costs plus factoring the influence of HFT colocated computer you think we could see the DOW crossing 12,000 going into the end of the year?

alstry said...


WASHINGTON ( -- President Obama on Saturday announced changes that the IRS plans to make to encourage workers to save more of their paychecks.

"Even before this recession hit, the savings rate was essentially zero, while borrowing had risen and credit card debt had increased," Obama said in his weekly radio and Internet address. "More broadly, tens of millions of families have been, for a variety of reasons, unable to put away enough money for a secure retirement. ... We cannot continue on this course."

Most of the following changes will take effect immediately because of rule changes made by the Treasury Department.

Auto enrollment in retirement plans: To make it easier for smaller and medium-sized employers to automatically enroll workers into retirement plans, the administration will clear up some bureaucratic paper-work hurdles for employers to offer that option. Employees could still choose to opt out of the retirement plans.

Saving tax refunds: To make it easier for those owed tax refunds to save, the IRS will allow tax filers in 2010 to recoup their refund by issuing U.S. savings bonds.

Sick days and vacation time become 401(k) money: To make it easier for workers to rack up savings, the White House will make it easier for employers to convert (or allow workers to convert) unused vacation and sick leave pay into 401(k) contributions.

stilettoheels said...

Layoffs are declining, job losses are declining, productivity is picking up, commodity prices are rising, volatility is declining, and credit spreads are declining, among many other green shoots mentioned here and elsewhere.

So what. The business cycle bottoms when real personal income less transfers, payroll employment, real business sales and industrial production bottoms. Now all four variables don't bottom contemporaneously but they should bottom within a 3 month period.

The value of the S&P500 or the Wilshire5000 is irrelevent for business cycle purposes.

Yes, the unemployment rate rises after the business cycle bottoms. So what.

Scott Grannis said...

Heasley: and the rise in political anger is another improvement on the margin, as far as the market is concerned, because it reduces the chances that Obama's full agenda will be implemented. I've been commenting on this for quite some time. "What's bad for Obama is good for the market."

Scott Grannis said...

Bill: If the economy is doing well then I and other supply-siders will have to concede we were wrong. Obama would deserve another term if his policies could somehow result in growth that seems improbable to me. With Reagan, though things were very different. He was espousing policies that made sense. He believed in the power of free markets, and he was rewarded for that belief. Obama does not believe that the private sector can do anything worthwhile, without a huge helping hand for government.

Bob said...


The problem is timing. Couldn't there be an uptick in growth from short term stimulus and even a small down tick in unemployment going into next year? That and along with a biased MSM and a Republican Party that can't seem to get out of its own way and the Dems remain in tight control. This even though in the longer term Obama's policies would lead to a weaker economy.

I hate wishing for a bad economy!


Scott Grannis said...

Bob: I suspect I used a poor choice words in my previous comment. My current thesis is that the economy will recovery and will grow at a 3-4% rate. That's not exactly a "bad" or a "not-well" economy. But it would not be enough growth to make people feel like things were getting significantly better. It would not be enough to result in a significant reduction in unemployment, at least between now and the next election. It would leave people with a bitter taste in their mouth: all that stimulus and all that debt, and what do we get? Much less than we thought.

So yes we can get some growth, and perhaps some of that will be the result of stimulus, and we could get a downtick in unemployment. In fact I think both of those are likely. But considering the size of the "stimulus" it won't be enough to impress the voters in the middle.

Whether the Republicans can take proper advantage of this situation remains to be seen.

Padmanaban said...

That’s right. Unemployment is increasing day by day. Though there are job openings but still the case is very worse, since the companies are selective, and depending on the need, they take their time in finding the right candidate.