Earlier this week, Gluskin-Sheff economist David Rosenberg grabbed headlines when he said unemployment could go as high as 13%. Today he spells out his reasoning:
There are serious structural issues undermining the U.S. labour market as
companies continue to adjust their order books, production schedules and
staffing requirements to a semi-permanently impaired credit backdrop. The
bottom line is that the level of credit per unit of GDP is going to be much, much
lower in the future than has been the case in the last two decades. While we
may be getting close to a bottom in terms of employment, the jobless rate is very
likely going to be climbing much further in the future due to the secular
dynamics within the labour market that need to be discussed:
• For the first time in at least six decades, private sector employment is
negative on a 10-year basis (first turned negative in August). Hence, the
changes are not merely cyclical or short-term in nature. Many of the jobs
created between the 2001 and 2008 recessions were related either directly
or indirectly to the parabolic extension of credit.
• During this two-year recession, employment has declined a record 8 million.
Even in per cent terms, this is a record in the post-WWII experience.
• Looking at the split, there were 11 million full-time jobs lost (usually we see
three million in a garden-variety recession), of which three million were shifted
into part-time work.
• There are now a record 9.3 million Americans working part-time because they
have no choice. In past recessions, that number rarely got much above six
• The workweek was sliced this cycle from 33.8 hours to a record low 33.0
hours — the labour input equivalent is another 2.4 million jobs lost. So when
you count in hours, it’s as if we lost over 10 million jobs this cycle.
• The number of permanent job losses this cycle (unemployed but not for
temporary purposes) increased by a record 6.2 million. In fact, well over half
of the total unemployment pool of 15.7 million was generated just in this past
recession alone. A record 5.6 million people have been unemployed for at
least six months (this number rarely gets above two million in a normal
downturn) which is nearly a 36% share of the jobless ranks (again, this rarely
gets above 20%). Both the median (18.7 weeks) and average (26.9 weeks)
duration of unemployment have risen to all-time highs.
• The longer it takes for these folks to find employment (and now they can go on
the government benefit list for up to two years) the more difficult it is going to
be to retrain them in the future when labour demand does begin to pick up.
Not only that, but we have a youth unemployment rate now approaching a
record 20%. Again, this is going to prove to be very problematic for employers
in the future who are going to be looking for skills and experience when the
boomers finally do begin to retire.