Happy Trailing to You

One of the saddest parts of this meltdown is how long it is lasting. And one of the harshest realities in any deep recession, or as I prefer to call it because we have not seen numbers like this since The Great Depression, a “managed depression,” is the fact that unemployment is a trailing economic indicator. While the stock market recovers earlier – it is one of the “leading” economic indicators because it trades on expectations – employers do not rebuild their workforce without actual increases in demand, so unemployment often continues well beyond the time when economists will pronounce that we have reached bottom and may begin to rise, however slowly, from the ashes.

When the first quarter contraction (which we won’t know until next month) is added to the 6.2% contraction of our gross domestic product in the last quarter of 2008 (the worst since The Great Depression, 4.9% in the early 1970s had the previous record), the magnitude of overall economic decline will be staggering. Signs from Washington that the worst is over really means that we sort of know where all the bodies are buried, but we still have a lot of digging to do. The fact is that new jobs and replacing the old jobs that were not rendered obsolete (any so many were) does not occur in this environment. Employers need to know that their additional products and services will be purchased before they hire, not that they hope the buyers might be out there if they make or provide more.

So assuming the pundits are remotely accurate in their prognostication that the end of 2009 or beginning of 2010 will be “bottom” (some think the stock market has already hit bottom – I personally don’t – when the market sees what the “toxic asset” plan will really do to the bank’s ability to lend…), unemployment will continue to rise even after that occurrence. The UCLA Anderson School of Business just released their sobering “Forecast.” They’re seeing a national 10.5% unemployment rate (11.9% in California) as hitting bottom sometime in the middle of 2010. We’re not even in the middle of 2009 yet! That’s a loss of 7.5 million jobs due to this managed depression.

When you apply the alternative measurement multiplier that I have used in past blogs, based on government statistics (adding those who want full time jobs but only get occasional or part time work and those who just don’t know where to look anymore to the raw unemployment number, which only covers people who are actively looking for work who do not have part time or occasional work), 1.86, the numbers get downright gruesome. That 10.5% number comes out to 19.5% (virtually one in five Americans in the workforce!!!), and 11.9% is over 22% in this alternative measurement. Anderson suggests that high unemployment will continue into 2012 and maybe beyond!

The UCLA report indicates that these alarming numbers are the result of a fall in our national net worth of $9 trillion in stocks and $5.5 trillion in home values. As taxes rise at the state and national level, money that might have gone to rebuild some of these losses will go to the government, which may further erode our net worth. Yet, clearly the state governments, who cannot “print money” like the feds, have to get their revenues from somewhere. Today, the most coveted asset of all is a job!

No one really knows exactly when or where this will all end. Everything is a best guess, but a major natural disaster, global trade issues, the price of oil or the continued unraveling of our banking system could make the above numbers worse. On the other hand, if the banks recover their lending practices and home prices bottom out earlier, we may have some better news. The bottom line: don’t let recent rises in the stock market fool you. We are nowhere near out of the woods. The economy will continue to erode for a while. The key is to keep your eye on the rate of erosion – if that actually slows down, believe it or not, that’s actually good news.

I’m Peter Dekom, and I am trying to keep it real.