The Unemployment Crossroads

Last month unemployment hit 8.1%. Of course, the figure was not uniform across the country. Seven states posted double-digit figures. But, in Wyoming, less than 4% of the population is out of work. The February number was based on 651,000 people being pushed out of their jobs during the month. With the March jobs report only a few days away, the debate is whether the rate at which the economy is causing people to lose work will stay on a 600,000 to 700,000 pace or whether the job loss is slowing and whether the US will avoid a nationwide unemployment rate of 10%.

The stock market has been pointing to an improved economic picture. There has to be a lot of optimism built into a 20% stock market rise that takes less than half a month. But, news that GM (GM) or Chrysler might go bankrupt and that large American banks may need more government money pushed stocks down again. In a very short period of time, investors have begun to doubt whether there is a good chance that the recession will lose steam before the end of this year. The month which began with optimism is not closing out that way.

Although it is difficult to face, there is still a fair amount of evidence that the economy could be in the midst of another sharp drop. Recent housing figures may have been slightly better than expected, but less awful is still awful. Several large US companies, lead by utilities giant American Electric Power (AEP), said that the year would be worse than expected. It probably is a sign of severe trouble when the electric company is cutting costs. Whether GM goes into bankruptcy or not, it is still shrinking its workforce. Last week 7,600 salaried workers took buyouts. Chrysler has employee buyout offers pending. Several large auto parts suppliers are still cutting people. In other words, industries which were in trouble six months ago are in as much or more trouble now.

Some economists still persist in the belief, which has the benefit that it may be true, that the Administration’s stimulus package will catch hold before the end of the year. It is not a good sign that Congress is still fighting over the federal budget which is also part of the grand plan to get the economy out of recession. But, hope springs eternal.
If the number of jobs lost in March is under 600,000, economists can begin to make a case that pessimists are wrong. Unemployment will not hit 10% early next year. If the figure is less than 550,000 jobs lost some overly enthusiastic analysts may say the recession has already ended.

Being wrong about how bad something could be is a nice problem to have.

But, the chances are at least as good that the number of Americans who lost jobs in March is closer to 700,000 than 650,000, and that opens the door to the possibility that the government’s plan to save or create 3.5 million jobs in the next two years is wholly inadequate. It means that the number of people who are out of work could go up by six million or better before the end of 2009. The government has no remedy for that. Even $1 trillion deficit due to money spent largely to save the economy will be inadequate and, if unemployment numbers are getting worse, everyone will know that before most of the stimulus dollars are even spent.

Therein lies the dilemma that the American government, the states and cities, US business and financial interests face. The sand of the economy may slip though their fingers before they can make a fist.

Douglas A. McIntyre