Is America No Longer Great?

This morning we got better than expected initial claims data, with claims falling under 400,000 for the first time in what seems like forever, but that does not mean it’s “all systems go” on the jobs front.

We had 391,000 people filing jobless claims for the first time, as opposed to 420,000. Last week was revised to 428,000, up from 423,000. Continuing claims are still hovering around 3.75 million, so this is nothing new. We also saw the Bureau of labour Statistics announce that we created an additional 192,000 jobs over the past year.

Despite all of this “good news,” yesterday Federal Reserve Chairman Ben Bernanke made some comments that were captured by Bloomberg that made some people, including me, turn my heads.

Speaking in Cleveland yesterday, Bernanke said, “This unemployment situation we have, the jobs situation, is really a national crisis. We’ve had close to 10 per cent unemployment now for a number of years and, of the people who are unemployed, about 45 per cent have been unemployed for six months or more. This is unheard of.”

Bernanke went on to say, “Monetary policy is not a panacea. There are certainly some areas where other policy makers could contribute,” and “strong housing policies to help the housing markets recover would certainly be useful.”

These comments point to the fact, that since the Great Recession began, we have not come close to recovering the jobs lost, and we continue to cut jobs, despite supposedly being out of the recession. This morning, Nokia announced it would be cutting 3,500 jobs around the world, Bank of America is cutting thousands of jobs, and we have started to see even more layoffs on Wall Street, including the notorious Goldman Sachs.

This begs the question: will we ever return to full employment in the U.S.?

Full employment, as defined by the Federal Reserve, is an unemployment level around 4%. Currently, we are at 9.1%, and if you take into account people who have used up all of their unemployment benefits and those who are underemployed, we are closer to 16%. That means that almost one in five people in this country is unemployed or underemployed. That is an abysmal stat that no one thought we would see this late into the “recovery” (and I use that word lightly).

Not to make everything doom and gloom, Ford said this morning that it will add 7,000 jobs in the U.S. over the next two years, and we saw job additions from General Motors with its latest contract with the UAW. While there appears to be a slight recovery in auto manufacturers (slight, being the operative word), it does not come even close to making up for the jobs we lost.

To answer the question, it looks as if the U.S. may not see “full employment” for a long time, perhaps 2013, or even later. As an American, you have to believe in the power of American ingenuity and the will power of the country to get the U.S. back to where it needs to be. The in-fighting in Congress does not help confidence, which is something this country is sorely lacking.

America may not be “great” right now, but we have been through tougher times then this before. We just need confidence to get us out of this. Warren Buffett remarked earlier this year, “There is a resiliency to the American system. It does work. It sputters from time to time, it will sputter from time to time, but you don’t want to get worried.”

 

— Jonathan Chen

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