Jobs creation In America Still A Concern for policymakers

Contrary to many market commentators assertions, and also the headline unemployment figures that the US authorities are putting out, jobs creation in the US is still extremely lacklustre. The great financial crisis actually doubled unemployment in 2 short years – testimony indeed to the severity of what the US economy faced and although it has fallen from over 9% during the last 15 months it is still higher than the authorities would like it to be.

Your typical American remains concerned with the situation in which they current live, with a fear of continued erosion in both their and likely their children’s living standards at the forefront of their minds and this is leading to growing social tension, similar to Europe.

The current recovery has been slow and frustrating and even though the stock markets have largely recovered to pre crisis levels, confidence on mainstream has not been restored to the pre 2007 years. Many compare this crisis to the Great Depression, as the current number of unemployed, 12.2 million, is similar to the number seen in the 1930’s. Of course, the gross population in the Us is now much larger than it was in the 30s and, at a headline level, almost 1 in 3 people in the labour market were out of work at the nadir of the Great Depression whilst now it is less than 1 in 10. We would add however that the unemployment statistics in the US (and in the UK) has a skewed way of counting out of work people, ie if someone is deemed “economically inactive” they are not included in the stats and so the real unemployment rate is probably much higher.

The Numbers From the Crisis

Just before the financial crisis, the US economy was on an impressive run and the unemployment rate was held at 4.4% through 2006 and 5% at the end of 2007. The advent of the crisis quickly spread negative effects right around the globe as growth turned negative and the unemployment rate rose to 7.3% and, at its peak, almost 10% in 2009. The average number of weeks to find a job was 16 in 2007, in 2011 it hit 40.

The number of part-time jobs has risen from 4.5 million to as much as 9 million today whilst those deemed to be “marginally attached” to the workforce has also doubled from to 2.6m – these 2 sets of stats are skewing the unemployment headline rate artificially lower. So called “discouraged” workers have tripled.

From Action To Current Reality

Obama’s last speech to Congress, the State of the Union addressed revealed an unprecedented concern over the employment situation. The President used the word “jobs” 45 times – much more than in any other speech. The Federal Reserve changed policy too – linking its current ZIRP policy to a target unemployment rate of 6.5%. Using monetary policy to target real economic variables is unusual and is illustrative of policy officials in the US using all measures at their disposal to get the economy back on a proper self feeding recovery trajectory.

The unemployment rate closed out 2012 at 7.8%, down from the 9.9% at the peak of the crisis. The actual number of unemployed is now 12.2 million but was 15.1 million in 2009. In order to get an alternate unemployment rate that more accurately depicts what is going on in the economy, the US Labor Department also publishes the U6 aggregate which takes into account not only the unemployed but also the partial time workers and the marginally attached to the workforce. By adding these numbers we come to a final unemployment rate of 14.4%, corresponding to more than 22 million Americans. That’s an ugly number but still below the 17.1% recorded at the end of 2009.

Conclusion

The current crisis has touched pretty much every economy around the globe given the the degree of economic dependency, the current high levels of public debt, and the cack-handed way the Eurozone crisis has been handled by European politicians. The austerity measures currently being applied in Europe not only threw countries as Portugal, Spain, and Greece into the worst recessions in living memory, but is also adding to the woes of the US as demands for their exports is limited. This is unlikely to end any time soon…