Brother, Can You Spare A Dime…

The unemployment numbers came out today and the magic number finally hit above 6 percent for the first time in about 5 years. Over 600,000 jobs have been lost since the start of this year, when subject to a lot of fanfare, pundits said the early part of 2008 was going to be slow, with a recovery in the last half of the year. I think the pundits are all hiding right now. The villagers have taken their torches and are rushing through the forest trying to find the lost jobs. You’ll likely find the bottle thick glassed, lab coat wearing forecasters hiding in their data caves nearby.

As long as the unemployment numbers were hovering around 5.5 percent, the workforce seemed to remain stable. Sure we had job losses, but the rate was actually comforting, compared to the size of the workforce. (Please – no hate mail on this point.) What is important about this news release is that the real impact of job layoffs and closed plants finally made its way into the cash economy. Slowing retail sales and difficult conditions in the car business and housing are all showing strains. We’re in for the last dip of the recession.

The dreaded "R" word.

So what’s a pundit to do, besides hide?

Unemployment is a good indicator of how the changing size of the workforce reacts to economic pressures. If we look at the unemployment rate from around the early part of 2001, we were at an unsustainable rate near 4 percent. Wage inflation was taking over and the inflationary pressures were building. When the unemployment rate hit 6 percent in 2003, the economy had cooled in many sectors. Now we’re at the upside of the curve and we can comfortably forecast it will get a bit worse and then gradually start to improve into 2009. There actually isn’t a lot of difference in the numbers between 5.5 percent and 6 percent since no one agrees on the size of the workforce. Remember, this measure is brought to you by those jocular folks at the Bureau of Labor Statistics in the Household Survey.

So, the next time you see a pundit, buy them a cup of joe. For all we know, they’re the ones on the street corners these days.