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Wednesday, November 11, 2009

Rosenberg Daily - U.S. Unemployment Rate Headed For 12.0-13.0%

For the first time in at least six decades, private sector employment is negative on a 10-year basis (first turned negative in August). Hence, the changes are not merely cyclical or short-term in nature. Many of the jobs created between the 2001 and 2008 recessions were related either directly or indirectly to the parabolic extension of credit...

In a nutshell, to be calling for a 12.0-13.0% unemployment rate is meaningless except that it is very likely going to be a headline grabber. The most inclusive definition of them all, the U6 measure of the unemployment rate, which includes all forms of unemployed and underemployed, is already at 17.5%. The posted U3 jobless rate that everyone focuses on is at 10.2% (though if it weren’t for the drop in the labour force participation rate, to 65.1% from 66.0% a year ago, the unemployment rate would be testing the post-WWII high of 10.8% right now). The gap between the U6 and the official U3 rate is at a record 7.3 percentage points. Normally this spread is between 3-4 percentage points and ultimately we will see a reversion to the mean, to some unhappy middle where the U6 may be closer to 15.0-16.0% and the posted jobless rate closer to 12%...

So the business sector has a vast pool of resources to draw from before they start tapping into the ranks of the unemployed or the typical 100,000-125,000 new entrants into the labour force when the economy turns the corner. Hence the unemployment rate is going to very likely be making new highs long after the recession is over — perhaps even years...


...let’s put the 89.1 reading into some perspective. In recessions, the National Federation of Independent Business (NFIB) small business optimism index averages 92.5. In expansions, it averages 100.2. So let’s get a grip — the index, at its current level, is still consistent with a contracting economy. In fact, private payrolls are declining and GDP excluding government support is stagnant at best. By the time the S&P 500 was up 60% in the fall of 2005, the NFIB index was already well north of 100.

---Rosenberg, 11.11

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