Hopes of Recovery Raise with Falling Unemployment Rate
2 Positive Indicators give Hope
According to the Department of Labor, the jobless rate fell from 10.2 to 10 percent in October. This was better than expected, and has raised hopes that full recovery is closer than suspected. In addition, the number of underemployed Americans fell as well from 17.5 to 17.2 percent. Underemployed workers are those workers who are working part time, but want to work full time. These two numbers combined are significant, in that they are independent from each other and indicate positive action. More impactful is the fact that they were both unexpected by analysts. Two different criterion show positive signs, and cause for optimism. If fourth quarter numbers come out positive again, then long term recovery can be seriously discussed.
False Hope Breeds Caution
Unfortunately, the trumpets of recovery have been sounded before, only to fall silent with the next economic report. One reason that analysts have had trouble recognizing real recovery from a brief positive blip is the depth of this recent recession. Even with the drop in unemployment, more than 15 million Americans remain out of work. Moreover, since the recession started, the unemployment rate has more than doubled from 4.9 percent a couple years ago. To gain an understanding of the depth of this recession, history can lend some perspective. Unemployment can be seasonal and cyclical, but long term unemployment of six months or more is a good indication of serious trouble. For now, the number of people unemployed for at least 28 weeks is 5.9 million, the highest number since 1948 when this statistic began being tracked. Overall, this is the worst recession since the 1930’s according to economists. These numbers indicate the depth of economic stagnancy pervading the current economy. This is also a good indicator of the difficulty, even for the best economists and analysts, to accurately interpret indicators, and the number of predictions that proved false.
Still Falling, Just not as Fast
When the unemployment rate drops, many people interpret that as meaning that people have stopped losing their jobs. That’s a simplistic view overall of the job market. A dip in unemployment only means more people were hired than laid off. In November, employers cut 11,000 jobs compared to 111,000 jobs in October. It seems like a huge drop, but only amounted to a .2 percent improvement. Regardless how small the improvement seems, it’s still a great sign for the unemployment rate going down since December of 2007.
Timing is everything
One caution among many is reading too much into employment numbers in the fourth quarter. The number of cut jobs was the lowest since the fourth quarter of 2007. Holiday employment can skew numbers, and give a positive outlook in the short term. The problem is that when buying season is over, many of these new hires might be let go. The upside is that the rate at which jobs were cut in the industrial sector slowed as well. This is especially positive since that sector has been hardest during the recession.
Cautiously Optimistic
The seriousness of the current recession is hard to grasp for even the most well trained economists. There seem to be some indicators in troubled sectors that show signs of recovery, which is very encouraging. However, caution is still the guiding force.