Unemployment
The unemployment RATE is is the indicator most analysts are presumably referring to when they say employment is a lagging indicator.
The Unemployment Rate is the percent of people who are looking for work who don’t have it. It is therefore affected both by the number of people who are unemployed AND by the number of people looking for work.
As this chart shows, sometimes the Unemployment Rate is a coincident indicator (it peaks as the recession ends), and sometimes it’s a lagging indicator (it peaks after the recession ends).
Interesting, some analysts–John Hussman of Hussman Funds and Ray Dalio of Bridgewater–suspect that the unemployment rate will actually be a LEADING indicator this time around. Because more firings will lead to more defaults and foreclosures, which will put more pressure on the housing market, etc.
In any event, this time around, it hasn’t peaked yet. 10%+ here we come.
The BROADER Unemployment Rate Includes Part-Timers
Many analysts complain that the standard Unemployment Rate doesn’t capture the full picture of unemployment because it doesn’t include part-time workers who would rather have full-time jobs but can’t find them.
The blue line above, which has only been tracked since the mid-1990s, does include these folks.
It’s still going up…
INCREASES In Broad Unemployment Are Slowing
This is “second-derivative” stuff… a change in the rate of deterioration.
Asha Bangalore at Northern Trust notes that the rate at which Broad Unemployment is increasing is slowing. That presumably points to a coming turn in Broad Unemployment (the increases have to slow before we get decreases).
Of course, if you’re one of the folks fired in that slowing rate of increase, it probably doesn’t feel like good news.
One LEADING Indicator: Initial Claims
Initial jobless claims (weekly) are considered a LEADING economic indicator: They peak before the economy begins to recover.
Weekly jobless claims (red line) appear to have peaked back in March. The concern is that they have stayed very high–over 600,000 per week–instead of dropping quickly back to more normal levels (as they did in the past recovery).
So this would hardly seem to be a robust signal that the economy is on the verge of a strong rebound.
Another LEADING Indicator: Avg Hours Worked
And now we get to the devil in the details…
You can be “employed” but under-worked (and underpaid). One of the details that the sharper-eyed analysts focus on the employment report is average weekly hours worked.
Average Weekly Hours is also thought to be a leading indicator (in this chart, from Calculated Risk, it leads some recoveries and is coincident with others). In the past two months, this metric it has hit an all-time low.
An upturn in this measure would bolster the case that economy is turning. We haven’t seen it yet
Total Weekly Hours Worked: TANKING
Take the “average weekly hours” and the “number of people employed” (payrolls) and multiply them together, and you get… Total Weekly Hours Worked.
This gives you a picture of how much work is actually getting done in the economy–as well as, importantly, how much work people are getting paid for doing. Right now, as this chart shows, the answer is “not much.”
(This chart is updated through May. When it is extended through June, it will look even worse. The good news, such as it is, is that it appears to be a lagging indicator, at least based on the last recession).
The Scariest Jobs Chart Ever
This chart shows how far employment has fallen from the peak (as a % of the workforce) in all recession since 1948.
The current recession (red line) is already the second worst, and it’s on the way to being the worst.
Fortunately, there is still one precedent available to the glass-half-full crowd…
But Still Not As Bad As The Great Depression!
In the Great Depression, the unemployment rate surved from below 5% to 25% in three years.
Yes, they measured employment differently then, and the quality of the numbers was (relatively) lousy. But the level of change is still horrifying.
Note also what happened in 1936-1937, when the stimulus was removed (in part on the theory that it would lead to rampant inflation). The economy plunged back into recession and the unemployment rate nearly doubled from 12% to 20%.
Imagine the unemployment rate doubling from 10% to 20% today (in a year), and you’ll get an idea of what the more-stimulus-is-the-lesser-of-two-evils folks like Paul Krugman are so scared about.
