Is Unemployment Rate Not Just A Lagging Indicator, This Time?

[cieldumort]

In prior recessions, garden-variety recessions that is, the headline unemployment rate was generally regarded as a lagging indicator, going higher after the damage to the economy had already been done, and like a rear-view mirror, telling us where we had been. But this recession hasn't been like other post-war recessions, and some say, this time,

Comments

[kayjayuu]

In other news, bears poop in the woods...

Why are they acting as if this is a revelation? Are they expecting people to pay for mortgages with money from the Money Tree? I understand your point about indicators, but this is just... short-sighted or an understated scare tactic, ie, "omg now people have to move because they don't have a joooooooob!"

[cieldumort]

Are they expecting people to pay for mortgages with money from the Money Tree?

No, that would be corporate America. Homedebtors, by and large, are having to either pay up, or move out, unlike almost all of the corporate execs involved. So, Rantelli can sit back down.

It may not be a revelation to those of us following this downturn more closely than others, but these levels of unemployment that are now expected, were not factored into business planning as recently as this winter. Nor was this higher unemployment all that factored into to the various "stress tests."

[kayjayuu]

Which makes me concerned over just who is doing the actual, you know, factoring. Someone doesn't have a clue.

[cieldumort]

Arthur Anderson,perhaps.

Oh, wait...

[roadriverrail]

I dunno. I'm reminded of the day my friend thoughtdevil argued about capital punishment from the reverse angle. In a philosophy class he was taking, he question was posed "If, when the number of executions goes up, the amount of violent crime drops, and when executions are low, violent crime goes up, then is capital punishment a deterrant?" He responded by suggesting looking at the cycle inversely...that instead it was waves of violent crime followed by waves of executions. Occam's Razor kicks in

[cieldumort]

I tend to see this almost just as you laid out, but given that U3 may be topping 10% here this year or next, I think that unemployment has more potential systemic risk as a causation, than in prior post-war downturns. At or above roughly 10%, a vicious cycle is more likely to be beyond the typical free market and government responses. You have to start looking more towards 1933-1936 and WWII for effective policy tools.

[roadriverrail]

Oh, I agree. The power of unemployment to fuel the next cycle is definitely a problem.

My point is that you can break the other preconditions, unemployment will still rise as a laggard, but the cycle won't continue again. My current sense of optimism (and recall I'm the Ray of Sunshine here) is that we've lost enough preconditions for the cycles to continue, meaning we're looking at a laggard...though we're not in a recovery but rather an leveling-off.

[cieldumort]

IMF's just released forecast for the US takes the same view:

US GDP:
2009 -2.8%
2010 0.0%