Thursday, October 1, 2009

The Recession is over? Tell that to the 10% of Americans who don’t have a job.

With the recent statements lately by the news media that the recession is over you would think that we would no longer see those hefty unemployment reports each month that show first time unemployment claims in the hundreds of thousands. Do you think those people are feeling much better about being jobless now that the recession is over? What’s even more amazing is the government analysts have been talking about the “good news” in jobs because the amount of layoffs has decreased in recent months. Excuse me, but just because we have seen a decrease in the amount of unemployment claims doesn’t mean that we should get giddy over the ADP Report which shows that the private sector job market cut 254,000 people in September. Those jobs were held by real people. I don’t suspect that they are reading the report and having tailgate parties with their unemployed friends and neighbors celebrating the “good news.” Of course the Labor Department projects that number to be 200,000 but we have seen that their projections have been way off for months. Either way is this an indication that the recession is over?

What planet do some of the members of the news media live on? Dose their home planet have “good news” about their unemployment situation too? Let’s not all go out and buy a new car on this “good news” (of course, that program is gone now too). Instead, let’s look at the numbers and see how they REALLY add up.

Barry Habib of the Mortgage Market Guide did a great job of breaking things down. Here are his thoughts; “The population is growing, therefore the workforce is growing. There are 150M people in the workforce, and that number grows by about 1% or 1.5M people per year – simply due to population growth. Just to keep pace with that, the US needs to create about 125K jobs a month. So realistically, a loss of 200,000 jobs is actually means we are falling 325,000 jobs behind for just one month…which is enormous. Now consider that nearly 10% of the work force is unemployed – that’s 15 million people – a huge number of folks who are without jobs. And many people are not even counted in that data…If you haven’t looked for work in four weeks, you are removed from the ranks of “officially unemployed” people – but you might be discouraged, ill, dealing with family issues and therefore not seeking work. Taking those people into consideration brings actual Unemployment rates to about 11%. Then going on further, and counting the folks who have had to settle for part time work, as no full time positions were available – this brings the real rate of unemployment to about 17%! This is a whopping 23M people who are, for all intents and purposes – unemployed. This is more than the population of the state of Texas, or New York, or Florida…or actually any other state in the US other than California.
So how do we get back to the forty year average rate of unemployment, which was closer to 6%? And remember – for the past 15 years, which includes the 2001-2002 recession, the very worst rate of unemployment seen was about 6%. We’d have to see a drop in unemployment of 4%...which means 6M more people need jobs. If the target to reach this was over 5 years, the US would need to create 100,000 more jobs per month – ie: 6 million people divided by 60 months = 100,000 jobs per month. PLUS don’t forget, we need at least 125,000 additional jobs just to keep pace with population growth. This means the US needs to add 225,000 jobs per month minimum, consistently over the course of five straight years, just to get back to what we’ve become accustomed to being a normal level of unemployment.”
In the past 10 years – there was only one year when this level was achieved. It was 2006, during very good times, when we grew by 232,000 jobs per month on average over the course of the year. During the past 20 years, the average growth rate has been 91,000 jobs per month – and the very best 10 years were from 1991 – 2000, when we averaged 150,000 per month. So how do we get to 225,000 jobs per month on average for the next five years? Bottom line, we won’t. Expect higher unemployment rates to persist.”

I am not trying to let the wind out of anyones sails but the reality is that the recession is not over. Many think that we have not hit the bottom yet. We continue to see a rise in unemployment with more layoffs daily. And don’t be fooled by anyone who tries to cook the numbers or make bad news look like “good-news.” Bad is bad, good is good and we’re all big enough now to know the difference. Who knows how much longer we’ll be in this recession but my guess is that we have at least two more years before we start to see some recovery. Keep in mind all the news that got us here was based on the residential mortgage market mess and now we are looking for the next shoe to drop, the commercial mortgage market and that shoe is even bigger!!

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