Re-flation

Exactly what are the barriers that have to be overcome to reemploy the hordes of folks (the government tells us 7.2 million Americans) who have lost their jobs in this “recession”? Mortimer Zukerman (chairman and editor in chief of U.S. News & World Report) tackled that question in his op-ed “The Economy is Even Worse than You Think” piece in the July 14^th Wall Street Journal. He used the government’s own numbers, mostly generated by the Bureau of Labor Statistics, to look at the “slack” in the unemployment picture that has to be taken up before we start seeing people going back to work in the numbers that really matter.

The hard unemployment statistics, sitting at 9.5% across the national level, covers non-seasonal job loss (and excludes farm workers). It also requires that a member in this statistical cohort have actively looked for a job within the prior four weeks (1.2 million people or .78% of the workforce) and not have any occasional or part-time employment (9 million people or 5.8% of the workforce, a number that has doubled during the “recession”). Add those numbers back into the basic number and you have a national statistic of 16.5% representing the government’s own “alternative measurement” for unemployment.

The July 15^th New York Times points out how much worse the numbers can get if you look at this alternative measurement in individual states instead of just the national numbers: “[T]he rate reached 23.5 percent in Oregon this spring, according to a New York Times analysis of state-by-state data. It was 21.5 percent in both Michigan and Rhode Island and 20.3 percent in California. In Tennessee, Nevada and several other states that have relied heavily on manufacturing or housing, the rate was just under 20 percent this spring and may have since surpassed it.” That’s about one in five of the total workforce in these states that would like full time employment and aren’t able to find such jobs!

Want to play with numbers a little more? CNNMoney.com (July 18^th): “In the next few weeks, the victims of the mass layoffs that happened six months ago -- when the pace of layoffs was at its zenith -- will start running out of their basic benefits. A total of 4.4 million people are expected to face this fate -- or 65% of the entire filing population… The Labor Department doesn't track anyone who has moved beyond 26 weeks of unemployment in its weekly data on continuing claims (the number of people who request benefits after their first week). And, said Stella Cromartie, spokeswoman for the Bureau of Labor Statistics, said the agency does not currently have plans to begin tracking this population…. As a result, by late summer the government may begin reporting significant declines in continuing filers. But it won't be cause for celebration. Instead of of indicating that the economy is on the rebound, it could mean that more people are falling off the radar.” 650,000 Americans will run out of all unemployment benefit by September.

Back to the national numbers, Zuckerman challenges some of the government’s employment numbers as bordering on fictional: “June's total assumed 185,000 people at work who probably were not. The government could not identify them; it made an assumption about trends. But many of the mythical jobs are in industries that have absolutely no job creation, e.g., finance. When the official numbers are adjusted over the next several months, June will look worse.”

He also noted that the government does not take into account those who have been asked to take “unpaid leave” and notes that most workers who remain in the active workforce have reduced hours: “The average work week for rank-and-file employees in the private sector, roughly 80% of the work force, slipped to 33 hours. That's 48 minutes a week less than before the recession began, the lowest level since the government began tracking such data 45 years ago. Full-time workers are being downgraded to part time as businesses slash labor costs to remain above water, and factories are operating at only 65% of capacity. If Americans were still clocking those extra 48 minutes a week now, the same aggregate amount of work would get done with 3.3 million fewer employees, which means that if it were not for the shorter work week the jobless rate would be 11.7%, not 9.5% (which far exceeds the 8% rate projected by the Obama administration).”

Add these harsh statistics to the fact that re-employment after a recession is a trailing economic indicator; people add jobs only when they are relatively certain that there are buyers of the relevant goods and services waiting in the wings, ready to absorb the extra output. They tend not to spend their elusive dollars hoping there will be buyers.

So when any semblance of an economy quivers with new life, the unpaid leave-takers will come back first, the idle capacity of the existing workforce will be filled (maybe even with some overtime), a few part-timers will transition to full time, and to the extent the jobs that were eliminated during the recession were not a part of a permanent downsizing (like we have seen in both the financial and automotive sectors), we will see a very slow effort to rehire for the remaining jobs and perhaps a few new jobs created in this new economy.

States dealing with budgetary shortfalls and deficits are rolling governmental bureaucrats out the door faster than the federal stimulus budget can fill the void. Strains on their social safety net systems are cracking local governments who are reeling with their eroded income tax base, falling property values and declining sales tax revenues as consumers stay and home and sit on their dwindling cash.

If we are bottoming out or hit that low point in the near term, there is absolutely no reason for any of us to expect our economy to leap and bound with any modicum of joy for quite a while. We have a lot of overt and covert unemployment to absorb before our balloons re-inflate. The July 16^th Washington Post reports that “the Federal Reserve projected that the unemployment rate may surpass 10 percent by year’s end and warned that the economy may not return to full health for at least five years.” The road is long and hard.

I’m Peter Dekom, and I approve this message.