It's beginning to look like America's unemployment rate is going to get worse before it gets better.
That's a political problem. Now that the rate is officially in double-digits, the pressure is certain to build on President Obama and Congress to find ways to create new jobs. Economically, however, the picture isn't quite as scary as it looks.
Last month, the unemployment rate reached 10.2 percent, up from 9.8 percent in September, according to the jobs report released by the US Department of Labor Friday. The key figure for the Obama administration is probably 10.8 percent – the postwar record set in late 1982. If unemployment reaches that level again, then Republicans and, perhaps many Americans, too, would begin to blame the administration for the worst unemployment since the Great Depression.
For months now, economists have predicted that unemployment would top out at 10.5 percent, not the 1982 high. Now, some are reconsidering. "We have been forecasting a 10.5 percent peak for the unemployment rate in mid-2010; given that it is already at 10.2 percent, this could be too low," writes Joshua Shapiro, chief US economist for MFR Inc. in New York.
But if politicians are panicking, economists are not. The unemployment rate is based on a monthly survey of households and tends to be volatile, they say. More solid, steadier employment data suggests that the 22-month rise in unemployment is slowing appreciably. Here are four reasons why you shouldn't panic, either:
1. Job losses dwindle: Although the unemployment rate draws all the attention, the more telling portion of Friday's labor report was that 190,000 jobs were lost in October. That was slightly worse than a consensus of economists expected. But aside from August's figure, October's total was still the best showing in 14 months and less than a third of the 740,000 jobs lost back in January. "We're still on track to see outright gains in employment early next year," says Paul Ashworth, senior US economist at Capital Economics Ltd. in Toronto.
2. Fewer jobless-benefit claims: Last week, 512,000 Americans applied for first-time jobless benefits, the Labor Department reported, the lowest figure in nine months. In the two previous recessions, US employment began to swing positive once the claims data fell to near 400,000 or so. "We're on a path to get to 400,000," says Mr. Canally.
3. Demand for labor rising: American workers became far more productive in the third quarter. That's in part because companies, reluctant to hire, are pushing current employees to produce more per hour worked, says Michael Feroli, an economist with JPMorgan Chase. As business strengthens, employers are beginning to hire temporary workers – up 34,000 in October. If history is any guide, they should also begin increasing the work hours of their current labor force. Then, they'll begin hiring new workers.
4. The lag factor: The last two relatively mild recessions were followed by so-called jobless recoveries, because it took months before employers began hiring new workers. But after this much more severe downturn, Canally, for one, sees this recovery hewing closer to the recoveries of the mid-1970s and early 1980s, when job growth came more quickly. "We're still in a jobless recovery," he says. But it's "tracking a little more to robust recoveries" than weak ones.
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