Jobless Conditions Ominous

Jobless Conditions Have Ominous 1930s Overtones

By Barrie Mckenna | 18 September 2009

If you factor in differences in how the jobless rate is calculated, current unemployment would be about 17 per cent, or a bit worse than 1930. Amid all the reminiscing about last September's financial mayhem, it's worth pointing out the obvious: A year isn't a very long time. The Great Depression didn't end in 1930. It had barely begun. [[On the other hand, the reaction of the governments and CBs of the world, especially in the US and UK, has been 180 degrees different! : normxxx]]

This summer's rebound in stocks, inspired by 'improving' [[!?! or, simply less worse?: normxxx]] economic indicators, is nice, for sure. But it's too early to relegate the crisis to the history books. And it's way too early for anniversary celebrations. It's easy to confuse the end of a recession with a full recovery.

That is particularly true in Canada, which was spared the worst of the crisis. Not so the United States. Americans have suffered a devastating financial and economic blow that will take years, not months, to heal, while the housing collapse has wiped out trillions of dollars worth of wealth. And the jobs that came with the boom are gone for a long time[[— construction and housing related— probably for good at the rates we saw during the boom!: normxxx]]

Consider the U.S. employment landscape. The jobless rate hit 9.7 per cent in August, and most economists expect it to breach the 10-per-cent mark by the end of the year, or early next year. Employers aren't done cutting jobs yet, wiping out hundreds of thousands more every month. Those may not seem like Depression numbers.

In 1930, the unemployment rate nearly doubled to 15.9 per cent from 8.7 per cent. But Daniel Albert, managing partner at New York-based Westwood Capital, has highlighted a few ominous parallels between the post-crash economies of 1930 and 2009. If you factor in differences in how the jobless rate is calculated, current unemployment would be about 17 per cent, or somewhat worse than in 1930 [[especially if you count the "off the books workers.": normxxx]]. The government now excludes vast numbers of workers who have given up looking for work, are on leave, on strike, working part-time or enrolled in job training programs. That wasn't the case in 1930.

"Suffice it to say that … we are in the same relative range right now," he argues. And then, like now, there was a hopeful rebound in stocks [[and a healthy drop in unemployment, which was almost cut in half between 1933 and 1937, once FDR started his "stimulus" programs>: normxxx]]. Mr. Albert insisted he isn't predicting a repeat of the Dirty Thirties. "The world today is, of course, vastly different than that of the 1930s," he said. That doesn't mean anyone should ignore history.

You don't have to go all the way back to the Depression to get some perspective. Economist Ed Yardeni points out that in the two most recent recessions— 2001 and 1991— unemployment went up after the slumps officially ended. It both cases, the jobless rate still had a full percentage-point of upside.

Mr. Yardeni figures that the recession probably ended in June. Based on the two earlier recessions, unemployment won't peak for another 15 to 19 months. He offered the sobering prediction that it could take as late as March, 2011, for employment to recover.

"This recovery will be much more jobless than the previous two," Mr. Yardeni argued in a recent research note. "The industries that have cut back the most— durable goods manufacturing, construction and retail— are inherently labour-intensive, and they are likely to remain in intensive care for quite a while". And it's hard to see where the momentum will come from to drive the U.S. economy once the impact of all the fiscal and monetary stimulus now being pumped into the system runs out.

"When the punch of these measures wears off, economic growth will fizzle," Mr. Yardeni said. "In other words, unlike every other recovery since the Great Depression, this one won't be self-sustaining". Does that mean the United States is headed for a double-dip, or W-shaped recession?

Not necessarily. But it could take a lot more fiscal stimulus to keep the recovery on track. The wildly successful cash-for-clunkers program has ended. An $8,000 (U.S.) tax credit for first-time home buyers is due to expire in November. And much of the federal stimulus money is already out the door. Many of these programs will need to be renewed to ensure that by next year's crash anniversary, no one is talking about the ominous parallels to the dark days of 1931 and beyond.