A 9.6 percent unemployment rate is flat-out unacceptable.  That it has only come down 0.2 percent from last year’s 9.8 percent is also unacceptable (vs. Sept 2009).  The Fed’s mandate is to “maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”  Herewith a look at a couple of relevant factors and some comparisons to the historical record.

How Big Was The Hole?

Estimates generally coalesce around an unprecedented $1 trillion dollar output gap.  Best I can represent, that number is derived by simply subtracting Real Potential GDP from Real GDP.  It’s a larger hole, by some $600 billion, than the $479 billion we saw in 1982.  That trillion dollar hole is what the incoming administration faced in the early months of 2009 (it’s still just over $900 billion).

(Click through all charts for ginormous.)

Putting Unemployment in Context

Given the gaping hole that opened up between what our economy can produce and what it did produce, it’s hardly startling that the unemployment rate spiked.  Let’s have a closer look at the unemployment rate and put it in some historical context.  I reiterate, and cannot stress enough, that a 9.6% unemployment rate — ~15 million unemployed Americans — is wholly unacceptable.

The trajectory of the unemployment rate closely tracks that of the spread between GDP and Potential GDP, as shown below.  [NOTE:  I have inverted the Unemployment Rate to clearly show its correlation to the GDP/Potential GDP spread.  Consequently, the numbers on the right-side axis, 1/UNRATE, are not relevant; it's the correlation that is.]

It seems to have been forgotten that unemployment did not peak until 19 months after the November 2001 trough and 15 months after the 1991 trough.  In the current recovery, if we do not drift above the previous high of 10.1 percent (Oct. 2009), we will have peaked four months after the recession ended.  The table below tells the story:

Recession Ends Unemployment Peaks Months
Nov-1982 Dec-1982 1
Mar-1991 Jun-1992 15
Nov-2001 Jun-2003 19
Jun-2009 Oct-2009 * 4*

*Remains to be seen, but is the current reality.

Now, a little while back I highlighted the fact that Private Payrolls (USPRIV at FRED) — indexed to 100 at economic troughs — has been tracking at a better pace than after the end of the last two recessions.  That post was a bit controversial, supported in some corners and criticized in others, presumably because it was perceived as pro-Obama.  (Facts have a well-known liberal bias?).

So, in that vein, here we go again with my new favorite FRED feature.  Let’s have a look at the Unemployment Rate — indexed to 100 at economic troughs — for the past four recessions:

What we see is perfectly consistent with the data in the table just above.  In 1982, the Unemployment Rate began to decline coincident with the end of the recession.  In 1991 and 2001, it continued to rise.  Since June of 2009, it continued to rise for a few months and then began to descend.

Now, to be crystal clear (again):  None of this is to say that a 9.6 percent unemployment rate is acceptable.  It is not.  And the Fed, the President, and Congress need to do all they possibly can to bring it down more quickly.  However, relatively speaking — after all, indexing lets us level the playing field and make apples-to-apples comparisons –  although we are struggling mightily, it would appear for the time being that we are at least holding our ground.  That’s a far cry from doing well — and we need to do better — but at the moment we’re not (yet) backsliding and there is some small amount of comfort to be taken from these comparisons.

Category: Current Affairs, Data Analysis, Economy, Employment, Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

38 Responses to “The Output Gap and Unemployment”

  1. wngoju says:

    I – good and useful, thanks

  2. Livermore Shimervore says:

    Excellent. But I have to quibble wit this statement:
    “…. And the Fed, the President, and Congress need to do all they possibly can to bring it [unemployment] down more quickly. ”
    Why do you we have this knee-jerk reaction that when it comes to putting pressure on actors in this economy that Govt is first in line? Why aren’t we doing more to pressure Fortune 500′s to hire more?
    Not that they have a track record of doing so for the last decade but perhaps therein lies the problem.
    People scream bloody murder that Obama & his Admin aren’t doing enough to get more folks off the unemployment line but then make a B line for the Apple store that hires 1 American for every 10 workers it pays? Is Steve Jobs having trouble making the electric bill these days?
    The Chinese Pu Ba said it best to Fareed on GPS “Apple I pod retail cost $299. Cost to produce Ipod in China factory $3.99. All money goes back to USA”. I give you another Sino perspective from Jack Ma of Ali Baba “With us its: Customer first, worker second, shareholder third”.
    The U.S. government hasn’t the pockets nor the manpower to move the unemployment needle from 10% to 7%. U.S. corporations need to start breaking with tradition and actually show some interest in the U.S. worker.

  3. Invictus says:

    @Livermore

    Point well taken. I should have given more consideration to that, although I do think that there is a role for government to play in greasing the skids. TBP has some great commenters. Appreciate that insight.

  4. Petey Wheatstraw says:

    Have the same metrics been used for all three recessions, or are we comparing liters and quarts?

  5. bmoseley says:

    what about those broader measures of un/underemployment that are much higher. what is their comparison.

  6. Transor Z says:

    From Josh Rosner’s Stress Test (remember those?) overview back in Feb. 2009:

    * 0.5% GDP growth in 2010, after -3.3% in 2009 is now looking quite realistic

    * 10.3% unemployment rates in 2010, after 8.9% in 2009. We have estimated, if government stability plans fail, the rate will rise to 11% in 2010)

    * 7% declines in home prices in 2010, 22% in 2009 (They are down 18.8% y/y and 27% since 2006 peak, we have estimated a 2011 trough. Long term trends in home prices suggest that we will revert close to the peak levels of the previous cycle)
    ———————————

    Not bad, but I’m pretty sure that, in real terms, long-term unemployment has caused hundreds of thousands to drop out of the civilian labor force and therefore lowering the continuing unemployment number. The “actual” U3 may very well be around 11% when you normalize for historic participation rate.

  7. postman says:

    Invictus: Thank you. I hope to see similar illuminating comparisons w/1982 et al as we move further from recession’s end.

    Livermore: Throughout most of US economic history, there’s been full or close to full employment. So there’s no longstanding general aversion to hiring.
    My take is that the current administration’s track record and threat of more regulation/taxation severely destroys the incentive to start businesses and hire employees. There’s also the obvious vicious circle of wealth destruction (especially housing), unemployment, and reduced consumer demand.
    But I like to entertain altertnative views… Do you mean to suggest that firms should hire even if hiring is unprofitable?

  8. Invictus says:

    @Petey Wheatstraw

    I’m a bit unclear on what you’re asking, so I’m unsure how to answer. Could you elaborate a bit to give me a better understanding?

  9. Mannwich says:

    Spot on, Livermore. Don’t hold your breath waiting for this to happen though. The current corporate order is the following: Corporate execs’ compensation first, corporate execs’ homes second, corporate execs’ yachts third……..and so on and so on…..

    Towards the middle of the list at highest is the customer, just below token charity galas to show the corporate execs care about the little people. The “country” (or IDEA of of it) in reality is towards the end, just above the rank in file worker, which is dead last. When you bury your workers so you can have a few more homes and yachts, you cannibalize your future customers who no longer have the money to buy your products and keep your company growing. Why is this so hard to understand?

    Is that where cheap and “easy” credit comes in, still?

  10. wally says:

    “The U.S. government hasn’t the pockets nor the manpower to move the unemployment needle…”

    The government sets the stage, provides the framework, sets the rules, is responsible for the welfare of citizens and is the prime actor in relations with other countries. It can’t move the needle by brute force, but it surely should at least appear to be trying – which it now is not.

  11. Mannwich says:

    Very true, but why is that, wally? It’s obvious that’s because the U.S. government is totally and utterly captured by those big corporations and their interests, despite those corporate execs whining about “new regulations, blah, blah, blah, new taxes blah, blah, blah..”

    That’s all theater.

  12. Rikky says:

    what’s different this time around is the public sector unemployment lag. municipalities are in the early stages of restructuring their workforce so there will be added pressure of those recently laid off on the numbers.

  13. WFTA says:

    Uncertainty about taxes and regulation is pure horse shit. It is something Rove told McConnell to put into bedtime stories for little Republicans.

    Fedex Q-1 revenues go up almost 1.5 billion and they need to lay off 1700.
    http://news.van.fedex.com/Q1FY11

  14. DeDude says:

    The 15 million unemployed workers represent a loss of 1.5 Trillion in GDP (given that we produce about $100K of GDP per year per full time worker). Yet a majority of the idiots out there are more concerned with the deficit than with unemployment.

  15. Mannwich says:

    Welcome to the “i-Depression”. BR also noted in this post.

    http://www.zerohedge.com/article/guest-post-idepression-20

  16. Petey Wheatstraw says:

    Invictus:

    As with most things accounting, over time, the formulas and metrics we use to count things (like the B&D adjustments in employment numbers, or including burger flippers in our manufacturing output, or dropping M3 from the measurement of money supply) have made comparisons between current and historical levels a matter of comparing numbers derived by different means.

    Did we calculate our current and past employment numbers, as shown on this chart, by the same formulas/metrics, or has government adapted them in order to simplify and/or obfuscate the numbers.

    As an example, it’s my understanding that during the GD, every unemployed person in the US over the age of 12 was counted, regardless of duration and that employment included (or did not include) part-time workers.

    As is explained, here:

    http://www.davemanuel.com/2009/03/06/the-real-unemployment-rate-is-much-worse-than-81/

  17. GreatWarrior says:

    Invictus,

    ” In 1982, the Unemployment Rate began to decline coincident … In 1991 and 2001, it continued to rise. Since June of 2009, it continued to rise … then began to descend.”

    Well, have you adjusted for the BLS bullshxxt of Birth/Death? And the new tricks of discounting the labor force to serve up a nice “official” unemployment number?

    Last I know, the Birth/Death adjustment is accounted for 90% of all “virtual” job growth since 2009. This was not a major factor back in 2001.

    So if you remove all Birth/Death as well as adjust for the labor force, or better yet use the Employment Ratio or Participation Ratio like David Rosernberg did, you should get a better picture of % of all working population age 16 and older.

    Sean

  18. ashpelham2 says:

    I haven’t given it a LOT of thought, but I often wonder what the country’s economy would look like right now, if we had been allowed to suffer through the recession around 2001, which no doubt would have been worse following the 9/11 attacks. I personally thought the first half of 2002 would have been cataclysmic in it’s recession, followed by a very nice upswing into growth again. Instead, a paradigm shift happened, particularly in the American living wages. More importantly, the difference between the cost of living and the American wage. It was a jobless recovery, yet we had gangbuster asset growth, in stocks, homes, etc. We also had skyrocketing food and energy prices, which the fed still fails to recognize as crippling inflation. Well, it is, and it was. And our very own leaders encouraged us to get in over our heads by encouraging rampant credit spending and shopping.

    What all this has to do with the post is that this recession was set to be MUCH more severe because of the last correction and how it was retarded by fake stimulus and policy rigging. Leadership was concerned with short term fixes, and primarily, getting RE-ELECTED.

    So, I”m not shocked at all that we are where we are. I’m actually a little surprised we aren’t worse off. No one deserves credit for that, except maybe for government spending. Even that has overspent it’s welcome.

  19. willid3 says:

    ashpelham2 and can’t forget the easy credit. that wall street sold us (with help from their friends). also can’t forget the declining wages that went with it (along with offshoring that helped accelerate wage deflation!)

  20. Livermore Shimervore says:

    “[1-]My take is that the current administration’s track record and threat of more regulation/taxation severely destroys the incentive to start businesses and hire employees. [2-]There’s also the obvious vicious circle of wealth destruction (especially housing), unemployment, and reduced consumer demand.
    But I like to entertain altertnative views… Do you mean to suggest that firms should hire even if hiring is unprofitable?”-postman

    on point 1 this sounds a lot like the tired “uncertainty’ argument. I call it tired because when we had a near decade of CERTAINTY on:
    interest rates (low), non-existent inflation, a robust stock market, credit flow, taxes (going lower still),an influx of foreign captial, regulation (less and less), uniterrupted GDP to the positive, Fortune 500-friendly trade policies that encouraged flooding of domestic markets with cheap goods, dwindling union power and fixed labor costs (minus health care insurance), increasing blue chip revenues from global markets…….
    With all of the CERTAINTY above, how many U.S. jobs did U.S. corporations create? How much did they increase wages and 401K matches? What you got was the worst track record since the 1940′s on jobs and falling wages–during the good times! If continuing all of the above failed utterly to replicate job growth seen in the 80′s and 90′s WHY do we continue to believe that these factors will deliver the jobs that were absent for a decade. A decade. I think that’s long enough to start looking for some new answers instead of just re-hasing the same old same old.

    as to your second point. No one expects the struggling to hire. We’re talking about all those companies who are doing quite well now and are sitting on trillions in excess cash. Andy Grove formerly at Intel complained about everyone in Silicone Valley having a “China Plan” (find all jobs that could be done there and moving them there!) but not one of them having a USA plan. People need to quit whinging about the government and need to start calling out the corporations THEY buy from for not hiring Americans. Although Helicopter Ben could stand to shut up for about a year too. He needs to start quashing the myth that he’s on point when it comes to walking us out of this wasteland. Every time he yammers about gloom doom and uncertainty all these high-priced CEO use it as justification to quietly continue the shit-canning and escape the leadership roles.

  21. deanscamaro says:

    And the multitude of employees filling American company jobs that were shipped offshore to India and Pakistan just keep smiling.

  22. grlampton says:

    At the risk of being off-topic, I would be grateful if someone here could explain how Keynsian economics is supposed to work.

    I understand that the theory is that the government is supposed to increase aggregate demand, thereby increasong employment, by deficit spending. That part I get.

    What I don’t get is this:

    In order to increase spending, the government has to get the money from somewhere, either by taxing, borrowing, or printing (“monetizing the debt” in econo-speak).

    (a) If the government taxes the money away from taxpayers, they will not have it to spend or save, resulting in a reduction in private demand which will offset the government “stimulus.”

    (b) If the government borrows the money, it still has to come from a lender, who will not have it available for other purposes, such as to spend or save. Assuming the lender would otherwise save, rather than spend (per (a) above), the money the government wants to borrow, those savings would not just sit idle. They would still be lent out, to some private business that might want to use it to finance some project, just not to the government. Hence, the government’s borrowing of money which would otherwise be available to lend to the private sector results in a reduction in private demand which will offset the government “stimulus.”

    That leaves (c), “monetizing the debt,” whereby the government issues bonds which the central bank buys up with newly-printed money. That seems highly inflationary, which again, at least in real terms, over the medium to long term, results in a reduction in private demand (through loss of purchasing power) which will offset the government “stimulus.”

    Ca someone please explain what I am missing here?

  23. willid3 says:

    [1-]My take is that the current administration’s track record and threat of more regulation/taxation severely destroys the incentive to start businesses and hire employees.

    [2-]There’s also the obvious vicious circle of wealth destruction (especially housing), unemployment, and reduced consumer demand.
    But I like to entertain altertnative views… Do you mean to suggest that firms should hire even if hiring is unprofitable?”-postman

    1) if we have such wimpy whiny businesses today that they are worried about taxes, they need to get out of it as they are a waste of time. when taxes were much higher it didn’t stop business before. they seem to be quite willing to make money. and actually do work too. and regulations before were much more strict (and they were even enforced). now they barely have any. and some are ignored.

    2) the obvious wealth destruction has occurred as their customers. the folks that make their business work. but they have been exporting their customers jobs. while pounding those that remain employed incomes. at some point they will have fewer customers able to buy from them. the only thing hid that fact before now was the easy credit (pushed by wall street. and wall street was also pushing the job export. wonder why was?).

  24. willid3 says:

    grlampton Says:
    October 20th, 2010 at 6:35 pm

    At the risk of being off-topic, I would be grateful if someone here could explain how Keynsian economics is supposed to work.

    I understand that the theory is that the government is supposed to increase aggregate demand, thereby increasong employment, by deficit spending. That part I get.

    What I don’t get is this:

    In order to increase spending, the government has to get the money from somewhere, either by taxing, borrowing, or printing (“monetizing the debt” in econo-speak).

    (a) If the government taxes the money away from taxpayers, they will not have it to spend or save, resulting in a reduction in private demand which will offset the government “stimulus.”

    (b) If the government borrows the money, it still has to come from a lender, who will not have it available for other purposes, such as to spend or save. Assuming the lender would otherwise save, rather than spend (per (a) above), the money the government wants to borrow, those savings would not just sit idle. They would still be lent out, to some private business that might want to use it to finance some project, just not to the government. Hence, the government’s borrowing of money which would otherwise be available to lend to the private sector results in a reduction in private demand which will offset the government “stimulus.”

    That leaves (c), “monetizing the debt,” whereby the government issues bonds which the central bank buys up with newly-printed money. That seems highly inflationary, which again, at least in real terms, over the medium to long term, results in a reduction in private demand (through loss of purchasing power) which will offset the government “stimulus.”

    Ca someone please explain what I am missing here?

    sure
    the Keynsian idea was to government spending was keep the economy from collapsing when in a recession or depression since the private sector is recovering and won’t be doing any thing but a full scale retreat from spending (like now).
    the other half of idea was that when the economy recovered, you were suppose to turn off that spending and allow the private sector to power it.
    problem is the last recession we did the government spending. we even did the tax cuts that so many were in favor (at least at the top 1% were).
    but when the economy recovered (or at least every body said it did any way).
    they never cut the spending. but in looking back we know why that was. the economy never recovered it was papered over with easy credit (from wall street!). if the government had done what they were supposed to do when the economy recovered. the truth would be out. it never had. nor has it now. and hoping the private sector will power the economy now is wishful thinking
    its stopped that a decade ago. only consumers did spending. and that powered by easy credit. which is gone now

  25. econimonium says:

    As someone that has been an executive at medium/large sized companies for about 15 years now (SVP level or above) I can clearly state that taxation has NEVER come into a hiring discussion. NEVER EVER. Any of you saying that have absolutely no experience in my book. I know what the discussions are, and it is NEVER anything about regulations or taxation. Period. So keep sucking up those Republican talking points as they have no basis in corporate reality.

    Hiring is related to revenue, product expansion, marketing, and other balance sheet issues. All of us leave taxes and any regulation up to finance/operations. I don’t want to know about any of it. I expect that they’ll do what they have to do to take care of it, that’s why they’re paid. Hiring has DIRECTLY to do with product/service demand. Full stop. No one EVER has said “Let’s not hire people because the government is going to [fill in blank] and if they did, they’d be tossed from the room.

    And contrary to what you all also think, the decision to outsource is a complicated and multi-faceted one. It isn’t to “save money” on wages. I’ll quote an old professor of mine “if you’re outsourcing to save money DON’T”. You won’t. It’s a strategic decision NOT a dollars one. If you added up all the travel time, additional project management and other support personnel for our outsourced groups you’d find the savings wouldn’t be much from basing everything here. But we get strategic 24 hour service and production advantage. So just stop it already with the bad meme “business isn’t hiring because the government…..”. Business isn’t hiring because demand sucks. Period. And it doesn’t look like demand is going to increase dramatically anytime soon, so we’re not rushing to hire.

  26. econimonium says:

    Let me further this. When I look at my headcount, I look at the “all in” cost of people. That includes their salary, benefits, payroll taxes, office space usage, communications, and assigned percentage of G&A cost. What we pay as a company in taxes is NOT in the plan. Ever. No where I’ve even been or anywhere anyone I know has ever been.

    The budget then comes from revenue projections, coupled with projects, product launches or enhancements etc and everything is driven from those projections. If revenue is down, or costs rise enough, we talk about headcount reductions or hiriing freezes or what cutbacks we will get from attrition. It’s basic business school stuff here. And revenue projections come from….wait a second for the drum roll…DEMAND FOR THE PRODUCT/SERVICE. So the debate here is what the government can do to put money into people’s hands who will spend it, or in businesses hands who will plow it into investment. But of course no one will if….here it comes again….DEMAND IS SEEN AS LOW FOR THE FORESEEABLE FUTURE.

    This varies, of course, from business to business. If the government REALLY wanted to spur demand it could do one simple thing: offer guaranteed refinancing to anyone that wants it and can demonstrate the ability to pay down to present low interest rates on their houses. That would put so much more money back into circulation it wouldn’t be funny. But does anyone want to do that? Nope. Is it fair to everyone? You bet, anyone can do it. So why don’t we?

  27. DeDude says:

    Grlampton;

    a) As long as the taxes are levied on the investor class (rich) rather than the consumer class then the reduction in private demand due to tax increases is minimal. Furthermore, if the investor class is overcapitalized (as they are now, with much more money than there are productive investment opportunities to absorb) they will tend to use their money to speculate in things like commodities. This speculation increase the cost of consumer items (think spike in gas prices during the last oil speculation) and reduce consumption – so you get an extra bonus by removing excess capital from the rich.

    b) You are assuming that investment will occur without demand and that is not true. Without demand from private or government spending there is no private business investment (you don’t increase production until you see increased demand from your government or private citizen costumers). As mentioned above the excess capital instead goes to speculation in commodities or metals.

    c) inflation is the cruelest tax of all, but also the easiest to get past a legislator, because they know that tax-increases are a sure one-way ticket out of the chambers of power. However, in a severe recession or stalled economy the problem is deflation not inflation so a push in the inflationary direction is not a bad idea, the big question is whether they can get adjust that policy fast enough to prevent real inflation (and be forced to shut down the growth with quick and brutal interest rate hikes).

  28. DeDude says:

    econimonium;

    But when the consumer is refusing to spend any money they get the only way to increase demand is by letting the government do the spending (government spending is for stopping the fall and initiating growth). Not until consumers again gain confidence can you give them taxcuts or lower interest rates and expect that they will spend that money (taxcuts are for pulling out faster). However, in the long run it all goes to hell if there is an imbalance between how much of the GDP goes to the consumer class and how much goes to the investor class (Unions and increased minimum wages are for consistent sustainable growth)

  29. NormanB says:

    I recently saw the Okun relationship between 4 quarter changes in the unemployment rate and the 4 quarter change in GDP. Using this regression a 400 bp drop in the unemployment rate would mean an 11% rise in real GDP. Thus, my guess is that pretty close to what the output gap is. BR can tell us that with an output gap like that rising inflation and long term rates are not very possible.

  30. econimonium says:

    deDude…yes. You are absolutely correct. In these situations the Government can and should start spending regarless of the deficit which will, of course, come down as revenue collection increases with economic activity. The only way to get businesses to hire is to increase demand for goods and services and if the consumer won’t and government will, then government can back off once consumers get their footing again. To a buiness it doesn’t matter WHERE the demand comes from.

    I’m at a loss to understand what people don’t get. Oh wait. It’s usually partisans or academics arguing who don’t actually RUN anything. Or people who only listen and don’t actually think. Or people who want to keep other people in their place economically so they have someone to look down on.

  31. cognos says:

    Money is just an ILLUSION! (Little green pieces of paper or numbers in some computer).

    Therefore, the Fed’s job is to maintain “price stability” which really means “stable expecations” and to manage risk-taking, money-creation, credit-creation (all highly related) to insure the right BALANCE of inflaton and employment.

    This is all basic economics — employment, Okun’s Law, Output gap, the only “real” l-t inflation is “wage inflation”.

    Therefore — the Fed has FAILED the past 2 years. The have been enormously BEHIND THE CURVE and sadly have screwed the unemployed, and especially recent graduates in favor of some silly intellectual “fear of exit plan” that has proven unfounded.

    That fear is over. The Fed will not remain behind the curve anymore.

    This is QE2. Risk ON!

  32. cognos says:

    Note that the main CPI measure (Index of Urban Consumers) remains below (!) July 2008 levels.

    Thats negative price inflation (deflation) for 2+ years (versus +2% inflation expectations). Lowest levels seen since great depression.

    Kinda explains everything — housing, AIG, commodities, etc. Its not about “too much debt” or “bad mgmt” or “evil bankers”, etc. Its just about the Fed screwing up the price level with deflation.

  33. BigD173 says:

    “indexing lets us level the playing field and make apples-to-apples comparisons”

    Kind of interesting, and hooray for indexing I suppose, but is it really an apples-to-apples comparison when you haven’t controlled for such factors as the amount of fiscal and monetary stimulus administered during the various recessions? I’d like to see how we are doing compared to previous recessions when those variables are factored in.

    I suspect not all that well. Interest rates are at historic lows and we’ve direct a lot of money in various forms (the stimulus bill, extended unemployment benefits, homebuyers tax credits, appliance rebates, etc, etc.) to put money in people’s pockets and increase aggregate demand. Yet we have hardly moved the needle on unemployment.

  34. crjdriver says:

    Output Gap based on Real Potential GDP?? By that do you mean GDP that (for the last 2 decades) has been goosed by ever expanding Debt relative to personal or national income ? In my opinion, that is not Real Potential GDP, but GDP borrowed from the future. (Which has to be paid back or defaulted on) and as such “Potential GDP” should be adjusted much lower and as such would eliminate the “Output” Gap.

    Unemploment comes from the Malinvestment of that borrowed GDP or Demand pulled from the Future through debt accumulation. (Credit bubble used for unproductive purposes creating false demand employment)

    As such I fail to see how QE 2.0 is going to do anything but transfer the wealth of savers and pensions to Debtors and Debt holders essentionally cancelling out eachother.

  35. DG_Allen says:

    @econimonium

    Here here!!! Thanks for your comments. Having been in management (not as high as you, but high enough) at a two very large corporations this talk of the “uncertain regulatory environment” is pure partisan crap cooked up by consultants and passed around by the Chamber of Commerce. Business will hire when they see demand increasing and only reluctently so then! The motive is profit.

    I will differ with you on the outsourcing topic. I think your experience and opinion is the correct one, but it’s not universal. I was part of outsource IT jobs and the only strategy was to get the same work done for a cheaper rate in India. We did limit our scope to areas where we had stable processes that we could managed, but it was all about cost.

    The thing about corporations that kills me are the layoffs strictly done to protect profit. It’s a very short sighted decision and the unemployed will lower aggregate demand and create the need for even more layoffs. And, it’s not necessary. I have a friend who works at Toyota and the management their prides itself in never doing a recession cause layoff. They take the extra workforce capacity and put them on process improvement projects. This has three benifits. You get better processes, you get to keep your trained and skilled workers and when demand picks up, you’re increasing your competative advantage because you’ve become more efficient. Toyota will be ready to go as car demand increases while everyone else stumples around to hire and train new workers and setup new capacity.

    If only our corporate leaders saw themselves and leaders in society like they used to. The greed has gotten carried away. We do need a new labor movement in this country to get money out of the hands of the investor class and into those of the working class who will actually spend it on something that moves the econonomy. Asset bubbles don’t do the society any longterm good.

    Thank you and goodnight!

  36. Brooks Gracie says:

    I simply get disgusted when I read things like this. Look at shadowstats.com and see that the real unemployment rate, measured the same way it was during the first Great Depression, now stands at 22.5%, barely less than the 25% rate in the 1930′s. The statistical manipulation is obscuring the very real facts on the ground and almost all analysis fails to recognize the seriousness of the current situation. To actually have an “official” rate of unemployment that matches the rate during the Great Depression, would require a revolution-inspiring 45-50% real unemployment rate. We are comparing apples to oranges, due to many years of administrations who alter the statistical measurements of unemployment to improve their images.

    So our populace fails to realize how broad this downturn is. And the unemployed get stigmatized because people, and families don’t really comprehend how widespread this problem is, but almost all families have someone affected by this crisis. The unemployed person is simply perceived as defective, not a victim of circumstance, but if people were really aware that one in four are in the same boat, then empathy would increase dramatically.

    And Congress is funded by multinationals who truly don’t care about domestic conditions, so long as they can reduce costs by offshoring labor. And Republicans own the shares in multinationals, and are thus benefiting from the offshoring of jobs. And no one is interested in either governmental intervention to fix the problem by hiring enough people to match actual and potential output, or to place controls on imports or offshored labor that could reverse the problem in the private sector. So, to summarize, “we are toast.”

    ~~~

    BR: I live John Williams work, but his (well-deserved) pushback against the BLS sometimes leads to some exaggerations that i think undercut his message.

    No, we don’t have nearly 25% unemployment, close to the great depression. But we all know that the 9.8% Unemployment rate does not represent a full accounting. A more accurate number is the U^ — about17%.

  37. [...] Output Gap and Unemployment (The Big Picture) Unemployment is stuck at completely unacceptable levels, but it could be [...]

  38. beaufou says:

    I think that current unemployment numbers are here to stay unless the system changes globally.
    I believe in fairness, and the present system isn’t fair to any of us unless you are already super rich or you are an entrepreneur in a poor country.
    I suggest we scrap globalization and replace it with a producing/consuming index, scrap currencies for international trade.
    Take a look at China, do they want to play the consuming game or just the producing thing while treating their own population like shit, India etc…
    Our own corporations have no intention of bringing those jobs back, stock options have replaced good products.