U.S. Unemployment Rate Either Falls to 7.8% or Increases to 23% — Depending on Whom You Ask

October 8, 2012 by 2 Comments

The Fiscal Cliff

The Dow Jones has risen despite uncertain economic times, but could be due for a major correction if another recession hits. Image credit: StockCharts.com.

There is a serious confluence of economic factors threatening to derail not only the U.S. recovery, but potentially the world economy as soon as January 1, 2013. On that date, known as the ‘Fiscal Cliff,’a series of tax cuts and other forms of tax relief are scheduled to expire, while at the same time across-the-board spending cuts totaling $1.2 trillion are set to begin. While potentially good news for the budget deficit, economists believe the resulting decrease in discretionary income would plunge the U.S. economy back into recession, with first-quarter GDP shrinking at an annualized rate estimated at 3.9%. To date, there is no consensus as to how to tackle this issue, and in fact many believe the best course of action is to allow it to happen.

Perhaps the first to fall would be the stock market, which has seen extraordinary gains thanks to the advent of quantitative easing. The dominoes after that could be equally devastating to the overall economy.


Labor Market: Long-Term Health

Over the long term, the labor market always recovers. The question is not if, but when. It is possible that the traditional economic definition of full employment (per the Humphries-Hawkins Act of 1978) of 96% has experienced a quantum shift due to technological efficiencies coupled with a permanent conservative position initiated by the Great Recession; the net impact of the shock to the labor force has yet to be seen. Although certainly good news, the shadow unemployment rate remains a threat to full employment occurring anytime soon, as does the impending “fiscal cliff.”

In an economy buffeted by over four years of mostly bad news, however, dramatic improvement in the unemployment rate (even as narrowly measured) is certainly welcome. It’s now up to the bickering politicians to keep things going. Don’t hold your breath.

Resources:

United States Department of Labor, Bureau of Labor Statistics. Employment Situation Summary (2012). Accessed on October 8, 2012.

KTVU. U.S. unemployment below 8 pct, first time since 2009 (2012). Accessed on October 8, 2012.

Trading Economics. United States Unemployment Rate (2012). Accessed on October 8, 2012.

SoldAtTheTop. On the margins: Calculating the ‘total unemployment’ rate (2012). Christian Science Monitor. Accessed on October 8, 2012.

NIDataPlus. Historical Labor Force/Unemployment Data for UNITED STATES (2012). Accessed on October 8, 2012.

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  • wyatt buchanan

    Let’s talk facts not rhetoric.
    25 million Americans are without full-time work. Over 5 million have been out of work for 27 weeks or more. The share of the unemployed who have been out of work for a year or more has soared from 12 percent three years ago to over 30 percent today. The share of the population actually in the labor force has shrunk to a post-World War II low. Almost 8.5 million people have given up looking for a job, so they are not counted in the unemployment rate because they have not searched for work in the prior month.

    The real unemployment rate is 15 percent, measured by what is called U-6, which includes people who are working part-time on an involuntary basis. We have 4.7 million fewer jobs than the peak reached at the end of 2007. And indeed much of the improvement in jobs has been through dubious “seasonal” adjustments, such as the July seasonal bump of 377,000 jobs—the largest such adjustment for July in the past 10 years. The labor participation rate has dropped to a 30-year low, and if not for that development, the unemployment rate would be much higher.

    Fewer Americans are at work today than in April 2000, although the population has grown by 31 million since then. A worker between the ages of 50 and 61 who has been unemployed for over a year has only a 9 percent chance of finding a job in the next three months. A worker who is 62 years or older and similarly unemployed has about a 6 percent chance. And 50 percent of this year’s college graduates are without jobs or are underemployed. What a waste.

    Four more years of this administration and our country will collapse from within. There has been no new hope and the change has been for the worse.

  • Walter McLaughlin

    Actually, although I presented both sides of the debate and I wasn’t taking a political position, the concepts of both U-6 as well as SGS were featured in the article. Some of my statistics differ from yours, but the concepts are the same.

    I don’t see this as a single administration’s issue. The underpinnings of where we are today started decades ago, and in my view, both political parties are to blame.

    Thanks for reading and contributing. Your information is definitely sobering.