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Monday, July 5, 2010

The Employment Depression

Ambrose Evans-Pritchard makes the case that we shouldn't worry about going into a depression... we are already in one. Per the Telegraph:

Let us be honest. The US is still trapped in depression a full 18 months into zero interest rates, quantitative easing (QE), and fiscal stimulus that has pushed the budget deficit above 10pc of GDP.

The share of the US working-age population with jobs in June actually fell from 58.7pc to 58.5pc. This is the real stress indicator. The ratio was 63pc three years ago. Eight million jobs have been lost.

The average time needed to find a job has risen to a record 35.2 weeks. Nothing like this has been seen before in the post-war era. Jeff Weninger, of Harris Private Bank, said this compares with a peak of 21.2 weeks in the Volcker recession of the early 1980s.

"Legions of individuals have been left with stale skills, and little prospect of finding meaningful work, and benefits that are being exhausted. By our math the crop of people who are unemployed but not receiving a check amounts to 9.2m."
The below chart shows just how bad things are using the employment to population ratio. While women are at a 20 year low, men are just about at an all-time series (record keeping began in 1948) low.

Back to Ambrose Evans-Pritchard's outlook, which is not all doom and gloom as long as central banks don't tighten on the monetary side while governments tighten on the fiscal front:
Perhaps naively, I still think central banks have the tools to head off disaster. The question is whether they will do so fast enough, or even whether they wish to resist the chorus of 1930s liquidation taking charge of the debate. Last week the Bank for International Settlements called for combined fiscal and monetary tightening, lending its great authority to the forces of debt-deflation and mass unemployment. If even the BIS has lost the plot, God help us.
Source: BLS