- Last Updated on Wednesday, 26 August 2009 18:22
- Published on Wednesday, 26 August 2009 18:22
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For most of 2009, the speculation had been that the unemployment rate in the United States would, at some point, reach 10 percent. That would have meant that roughly 15 million Americans would have been out of a job. However, that didn’t happen. Instead, when the July unemployment statistics were reported, unemployment edged down a little. It wasn’t much, just a 0.1 percent reduction, but it was nonetheless a welcomed surprise.
This has predictably led to a sudden burst of enthusiasm that perhaps the recession, if not over, is at least bottoming out. That would be welcomed news and maybe the U.S. economic engine is finally starting to rebound. But, while this data is encouraging, like any good economist (our purpose in life, I am convinced, is to temper good news and rain on the parade) I have to caution that it doesn’t tell the whole story. So, a quick look at the statistics. To be considered unemployed, a person has to be actively looking for work. That’s what the 9.4 percent rate reported by the press refers to.
However, that’s not the whole story. One measure of unemployment, and yes this is also an official statistic kept by the government, that tells a little more of the story, is when the unemployment data is expanded to include individuals who have given up looking for work. This is easy to imagine, particularly in regions of the country, such as parts of Michigan for example, where work of any kind is almost non-existent. When this additional data element is added to the unemployment percentage that’s commonly reported by the media, this adjusted unemployment increases the percentage considerably.
Another statistic that caused a little anxiety last week was the wholesale price index. Most of the time, in fact, just about all of the time, it goes up. Sometimes by a little, sometimes (say, like in the 1970s) by a lot, but it always increases. However, last month, it went down by more than 6 percent. In fact, the slide was the worst in 60 years. This is called deflation, and it’s something that worries economists a great deal. What this means is that the demand for goods has contracted so much that prices are dropping. That may sound good, I haven’t met anyone who doesn’t like to pay less for something, but the downside is that it could also indicate that U.S. economic activity is still contracting. However, the hope is that it’s something of an anomaly.
As for the President’s stimulus package, it’s hard to tell whether it’s having that much of an impact or not. The stimulus package, arguably, is actually a mix of major investments in short term job producing projects as well as offering longer term seed money for new industries. Just how many jobs the initiative has created in the short six months since the bill was enacted is probably impossible to track. But, hopefully, particularly in some of the harder hit regions of the country, and for industries in transition, it’s going to make a difference.
However, there is also another side to this recession. One that makes it different from most of the economic downturns we’ve experienced. And that’s the impact on people, average, middle class Americans who, though keeping their jobs, have nonetheless faced a severe reduction in their personal wealth.
I am a good example. Two years ago I was rather smug about the fact that my house was worth substantially far more than I paid for it. And I also had a retirement account that just seemed to get better with every passing month. Then, in a matter of months the house lost nearly half its value. That’s OK, it’s still worth more than I paid for it. Unlike so many, in the parlance of the mortgage industry, at least I am not under water.
As for my retirement account, well, after a while, to avoid the inevitable bouts of depression that occurred as I watched its value decline, I took to just ignoring the account statements altogether. Mind you, I am comfortable enough. I have a decent disposable income, savings and secure job prospects. I know I am better off than all those folks who are unemployed or worried about keeping their jobs. Still, the trend, and this is well documented, is that Americans in this position, and there are lot of them, are spending less, tightening their belts and staying put. That’s going to make a difference when it comes to the economy’s recovery.
All economic contractions have their own particular signature and this one is no exception. However, if history is any guide, it’s one we will get through. Americans are creative, energetic and persistent. We don’t wallow in self pity for too long. Things are going to get better, but yes, this time, it’s going to test our patience.