With Unemployment Moving To 9.6%, Economic Impact Of Jobs Is Just BeginningPosted: June 29, 2009 at 3:45 am
The unemployment rate for June is likely to go to 9.6% or higher according to most analyst estimates. There are anecdotes from all over the country that businesses which have cut people are prepared to get along without replacing them until it is crystal clear that the economy is in a full-blown recovery. That could easily be another twelve to eighteen months away, which means that some industries will continue to cut jobs and others are prepared to work with skeleton staffs rather than raise expenses.
Unemployment is called a “lagging” indicator by most economists. The jobless rate recovery often runs a quarter or two behind an upturn in GDP. A prolonged period of unemployment higher than 10% may break that mold. A large enough number of people without work could hamper consumer spending enough that some parts of the economy could move back into a recession next year. The ranks of the unemployed are rarely good credit risks. This poses important problems for banks which hope to see the quality of their loan portfolios begin to rebound. There is a point at which unemployment becomes both a lagging and leading economic indicator. It shows the end of one recession and foretells the beginning of another if double-digit joblessness persists for any period beyond next year. The modern economy has not experienced this but once in the last several decades. That was in the early 1980s. The banking system was not as riddled with problems among its largest firms then and the auto industry was not in need of nearly complete nationalization.
Unemployment at or above 10% will also financially cripple many states, some of them to the level where they may not be able to provide basic services or pay their own workers. Those problems begin to cascade as states lack the ability to provide social benefits to the unemployed and state worker layoffs increase those numbers.
Unemployment could pass GDP damage, housing, and the credit crisis as the defining aspect of this recession. GDP may return to a level of 1% growth or simply move to zero and stay there for some time. The government has partially solved the credit crisis by putting hundreds of billions of dollars into the banking sector and dropping interest rates. It has not been able to do anything about jobs and nothing indicates that this will change. The stimulus package may be putting more money into people’s saving accounts and may also be moving up stock prices as money printed by the government makes its way into equity investing. But, at the same time, the Administration watches the economy move further and further away from its goal of adding or preserving three and a half million jobs. ...........(more)
The complete piece is at:
http://247wallst.com/2009/06/29/with-unemployment-moving-to-9-6-economic-impact-of-jobs-is-just-beginning/
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