An unemployment picture

[bart]

Total job losses since the bottom in unemployment in Oct 2007:
U3 (official rate): 4.4 million
U6 (broadest rate from the BLS): 8.5 million
U7 (broader than U6, discontinued in 1994) reconstructed by me: 10.2 million


Total job losses during the last 4 months:
U3 (official rate): 2.3 million
U6 (broadest rate from the BLS): 4.6 million
U7 (broader than U6, discontinued in 1994) reconstructed by me: 9.5 million


U3 & U6 numbers directly from the BLS.
U7 from 1971-1982 data directly from the BLS, interpolated.


http://www.nowandfutures.com/images/unemployment_sa.png





An alternate picture of unemployment claims, based on percentage of total workforce:

http://www.nowandfutures.com/images/claims_percent_workforce.png


Here's the same data, but raw, for comparison:

http://www.nowandfutures.com/images/unemployment_claims_long_term.png

[Finster]

Any thoughts on where these unemployment figures will top out? (Percent and/or pick your U...)

[jk]

bart, your first chart makes it look like the bls has always published u3 and that u3 topped out at 25% during the great depression. i was under the impression that the older data was more comparable to u6. do i have that wrong?

[metalman]

bart, your first chart makes it look like the bls has always published u3 and that u3 topped out at 25% during the great depression. i was under the impression that the older data was more comparable to u6. do i have that wrong?

had the exact same first reaction.

[bart]

Any thoughts on where these unemployment figures will top out? (Percent and/or pick your U...)


Amazingly enough, I happen to have a chart that's been up since November.


http://www.nowandfutures.com/images/unemployment_u3_cpi_phillips.png


While you were in band mode, EJ opined in the area in Jobs crash arrives on schedule - Eric Janszen (http://www.itulip.com/forums/showthread.php?t=7289)and he & I are fairly close in expectations, best I can tell.

[bart]

bart, your first chart makes it look like the bls has always published u3 and that u3 topped out at 25% during the great depression. i was under the impression that the older data was more comparable to u6. do i have that wrong?
No, you're generally correct as best I know.

had the exact same first reaction.


This is one of those areas where I'm damned if I do and damned if I don't.

I could have added another line color from 1900 to 1970 and called it the official unemployment rate without designating it as U3, which is technically correct.
I could also have added a few more lines showing what the official rate was between 1970 and 1994, when U3 was made the official rate... but then I would have had to add in U5 and U4 (and I only have incomplete data sets of them to boot). And then I'd also have a "spaghetti" chart.

I could also place a large text box at the bottom of the chart and detail what rate was official during which periods of time, and also go into more detail about the rates not being truly comparable over time since the definitions have changed so much. I could even include either the current definitions of U3, U6 etc. from the BLS, or just cite the link.
I intended the basic message of the chart to be both the facts, as they are & were, and more importantly to show all the fiddling that has been going on.

Anyhow, I did just change the wording in the legend to make it clearer and address your point as best I could.

I sure am wide open to any suggestions on how to present the area better & clearer and more fairly.

[we_are_toast]

Thanks for the charts Bart.

I found this interesting about InTrades predictions for unemployment.

Probabilities above are for the December 2009 U.S. jobless rate, from futures contracts traded on Intrade: The Prediction Market (http://www.intrade.com/). Based on these contracts, there is only a 1 out of 8 chance of an unemployment rate above 9.50% in 2009, suggesting that there's probably almost no chance that in 2009 we would be anywhere even close to the 10.8% jobless rate of 1982, and zero chance of reaching the unemployment rates of the 1930s and the Great Depression.
http://mjperry.blogspot.com/2009/01/intrade-predictions-for-dec-2009.html

I'm not a big gambler, but I GOTTA get a piece of this action!

[Finster]

Amazingly enough, I happen to have a chart that's been up since November.


[El Bartos Chartos]


While you were in band mode, EJ opined in the area in Jobs crash arrives on schedule - Eric Janszen (http://www.itulip.com/forums/showthread.php?t=7289)and he & I are fairly close in expectations, best I can tell.

Around 10%, then? Sounds good to me. The only thing I would add is that wherever the unemployment rate goes, it will understate the impact on US standards of living. Part of what this depression needs to accomplish is to bring global accounts back into better balance, i.e. rectify the global imbalances that have built up over the years with respect to US overconsumption, as seen e.g. in the trade deficit, low US savings rate, etceteras. This means the US will have to cut consumption relative to production, or looked at the other way, increase production relative to consumption. Employment, then, being a factor of production, would then have to decline less than consumption. That is, consumption must decline more than employment. One could say that 10% will feel more like 20%.

[bart]

Around 10%, then? Sounds good to me. The only thing I would add is that wherever the unemployment rate goes, it will understate the impact on US standards of living. Part of what this depression needs to accomplish is to bring global accounts back into better balance, i.e. rectify the global imbalances that have built up over the years with respect to US overconsumption, as seen e.g. in the trade deficit, low US savings rate, etceteras. This means the US will have to cut consumption relative to production, or looked at the other way, increase production relative to consumption. Employment, then, being a factor of production, would then have to decline less than consumption. That is, consumption must decline more than employment. One could say that 10% will feel more like 20%.

Indeed, and given that the upper end of my U-6 prediction is just under 20% (and my U-7 reconstruction runs 2-4% higher) and EJ is looking for 25% or so, that 20% of yours will be close to actual reality.

[we_are_toast]

This means the US will have to cut consumption relative to production, or looked at the other way, increase production relative to consumption. Employment, then, being a factor of production, would then have to decline less than consumption. That is, consumption must decline more than employment. One could say that 10% will feel more like 20%.

Being the novice to economics that I am, I usually have to think twice as hard to begin to understand some of the concepts discussed at iTulip. I've been thinking about this one, and I can't seem to grasp it.

"the US will have to cut consumption relative to production"
I'm not sure why you believe consumption an production are out of balance. Consumption world wide is most certainly dropping like a rock, and it seems production is trailing it right over the cliff.

Could I rephrase this in terms I might better understand and say, consumption has been a function of credit, credit is going away and we will now have to live within our means, so consumption is falling and production will have to be cut to remain in balance?

"That is, consumption must decline more than employment."
I'm pretty lost here. If consumption falls more than employment, doesn't it mean productivity is falling and we are producing the goods needed to fill the consumption with more people than we really need? Why do we have to do this?

[Finster]

Indeed, and given that the upper end of my U-6 prediction is just under 20% (and my U-7 reconstruction runs 2-4% higher) and EJ is looking for 25% or so, that 20% of yours will be close to actual reality.

In that case, it will "feel like" 30% or 40% ...

[bart]

In that case, it will "feel like" 30% or 40% ...

Ouch, that will leave big bruises... and at least Gen-X, Gen-Y, etc. folk will understand that what their grandparents sometimes talked about actually applies to them too.

[Finster]

Being the novice to economics that I am, I usually have to think twice as hard to begin to understand some of the concepts discussed at iTulip. I've been thinking about this one, and I can't seem to grasp it.

"the US will have to cut consumption relative to production"
I'm not sure why you believe consumption an production are out of balance. Consumption world wide is most certainly dropping like a rock, and it seems production is trailing it right over the cliff.

Could I rephrase this in terms I might better understand and say, consumption has been a function of credit, credit is going away and we will now have to live within our means, so consumption is falling and production will have to be cut to remain in balance?

"That is, consumption must decline more than employment."
I'm pretty lost here. If consumption falls more than employment, doesn't it mean productivity is falling and we are producing the goods needed to fill the consumption with more people than we really need? Why do we have to do this?

You are familiar with the "trade deficit", right? This represents the excess of what the US consumes relative to what it produces. If production and consumption in the US were in balance, the volume of exports and imports would be the same. But the US has been importing far more goods than it has been exporting, reflecting the fact that it consumes far more than it produces.

On a global basis, of course, production and consumption can't get too far apart for long, for everything that is consumed must be produced. But for some subset of the world - in this case the US - the excess of consumption over production has been offset by an excess of production over consumption elsewhere. Famously, BRICOPEC.

But even this situation is not indefinitely sustainable. Why would the rest of the world in the aggregate permanently consume less than its produces, maintaining a living standard below what it earns? Of course it does not. It only does so as long as it believes it is receiving something worthwhile from the arrangement. In this case, it's capital. The means of production.

It's akin to a farmer who raises 100 acres worth of crops. Each year, he sells his crops and uses the proceeds to buy the other things his family wants and needs, clothes, processed foods, automobiles, TVs, etceteras. His production and consumption are in balance. But suppose he his not satisified with the standard of living that affords him? The next year, he not only sells the crops he raised on the 100 acres, but also sells an acre along with them. So next year, he can consume more than he produces by exchanging capital for the difference.

This circumstance can go on for quite a while, but not indefinitely. For the next year, he can only raise 99 acres worth of crops. If he wants to maintain the lifestyle to which he had become accustomed, he must now not only sell his 99 acres worth of crops and one acre of land, but a little more land to make up for the lost acre of production.

A little reflection on this reveals our farmer to be a microcosm of the United States of America. While he enjoys a lifestyle in excess of his production, he is becoming poorer, even as the enhanced lifestyle allows him to fool himself into thinking he is enjoying increased wealth.

The whole illusion is enabled by the artificial production of credit. It works out much the same way whether the farmer actually exchanges an acre of land or an IOU for an acre of land. Produce IOUs for IOUs, and illusion is allowed to depart even further from reality. When people were "using their homes as ATMs", this is just what was happening. They were consuming more than they produced, exchanging IOUs for future production for the difference. The production of excess money and credit depreciated dollars versus their houses, creating an illusion of increased wealth. The wealth is spent, however, just as if it was real wealth, and in the end, real wealth is paid.

So to come full circle, we here in the US have eaten, burned up, and used up more than we have worked for for many years. In coming years, therefore, we will work more than we eat, burn up, and use.

[we_are_toast]

I kind of thought you were referring to the trade deficit and Americas overextend use of credit, but I wasn't sure. Thanks for taking the time to spell it out. I'm intrigued by the perspective that you, Bart, and others offer and want to follow your reasoning process the best I can.



You are familiar with the "trade deficit", right? This represents the excess of what the US consumes relative to what it produces. If production and consumption in the US were in balance, the volume of exports and imports would be the same. But the US has been importing far more goods than it has been exporting, reflecting the fact that it consumes far more than it produces.

On a global basis, of course, production and consumption can't get too far apart for long, for everything that is consumed must be produced. But for some subset of the world - in this case the US - the excess of consumption over production has been offset by an excess of production over consumption elsewhere. Famously, BRICOPEC.

But even this situation is not indefinitely sustainable. Why would the rest of the world in the aggregate permanently consume less than its produces, maintaining a living standard below what it earns? Of course it does not. It only does so as long as it believes it is receiving something worthwhile from the arrangement. In this case, it's capital. The means of production.

It's akin to a farmer who raises 100 acres worth of crops. Each year, he sells his crops and uses the proceeds to buy the other things his family wants and needs, clothes, processed foods, automobiles, TVs, etceteras. His production and consumption are in balance. But suppose he his not satisified with the standard of living that affords him? The next year, he not only sells the crops he raised on the 100 acres, but also sells an acre along with them. So next year, he can consume more than he produces by exchanging capital for the difference.

This circumstance can go on for quite a while, but not indefinitely. For the next year, he can only raise 99 acres worth of crops. If he wants to maintain the lifestyle to which he had become accustomed, he must now not only sell his 99 acres worth of crops and one acre of land, but a little more land to make up for the lost acre of production.

A little reflection on this reveals our farmer to be a microcosm of the United States of America. While he enjoys a lifestyle in excess of his production, he is becoming poorer, even as the enhanced lifestyle allows him to fool himself into thinking he is enjoying increased wealth.

The whole illusion is enabled by the artificial production of credit. It works out much the same way whether the farmer actually exchanges an acre of land or an IOU for an acre of land. Produce IOUs for IOUs, and illusion is allowed to depart even further from reality. When people were "using their homes as ATMs", this is just what was happening. They were consuming more than they produced, exchanging IOUs for future production for the difference. The production of excess money and credit depreciated dollars versus their houses, creating an illusion of increased wealth. The wealth is spent, however, just as if it was real wealth, and in the end, real wealth is paid.

So to come full circle, we here in the US have eaten, burned up, and used up more than we have worked for for many years. In coming years, therefore, we will work more than we eat, burn up, and use.