Inquiring minds are interested in figuring out how long it might take to get back to "full employment" defined as 5%.



John Mauldin touched upon this theme in Welcome to the New Normal.



John's analysis stopped short of making actual projections as to when full employment would return, or the detailed path it would take to get there year by year. However, I thank John for providing a nice starting point for discussion.



In Scarred Job Market Expected to Weigh on Economy The Wall Street Journal offers this look at how long it would take to return to employment levels before the start of the recession. Please consider the long road back.



The Long Road Back







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The Journal states ...

"On average, the economists don't expect unemployment to fall below 6% until 2013"



The Journal goes on ...



"On average the economists -- not all of whom answered every question -- expect the unemployment rate to peak at 10.2% in February. But even once the employment situation stops getting worse, economists expect recovery to come slowly. "It could take until 2014-15 before we see a 5% handle on unemployment again," said Diane Swonk at Mesirow Financial."



6% by 2013?!

5% by 2015?!

Really?



Mapping Unemployment



To map unemployment projections year-by-year from now through 2020 there are a huge number of variables to take into consideration.



Factors Affecting Unemployment Projections





Current Hiring Trends



Demographics

Working Age Population Growth Projections



Boomer Retirements

Participation Rate

Part-Time Employment

Drivers For Jobs

Housing

Commercial Real Estate

Global Wage Arbitrage

Outsourcing

Double Dip Recession

Productivity

Manufacturing





Monthly Job Growth 1999-2009

At the height of the internet bubble with a nonsensical Y2K scare on top of that, the economy managed to gain 264,000 jobs a month.

At the height of the housing bubble in 2005, the economy added 212,000 jobs a month.

At the height of the commercial real estate bubble with massive store expansion, the economy added somewhere between 96,000 and 178,000 jobs per month depending on where you mark the peak.





No Genuine Driver For Jobs.

The retail sector has massive overcapacity. We do not need more Home Depots, WalMarts, Lowes, Sears, Pizza Huts, Targets, Safeways, etc etc.

Commercial real estate is flooded with vacant offices and plagued by falling rents.

Housing inventory is enormous.

Boomers will be looking to downsize their lifestyles.

There is not going to be another internet boom.

Motor Vehicle Sales

Peak Growth In Jobs Is In

The internet boom peaked at 264,000 jobs per month in 1999.

The housing bubble boom peaked at 212,000 jobs per month in 2005.

The commercial real estate boom peaked at 178,000 jobs per month.

The next peak will be lower yet.

Current Picture

Table A Household Data October 2009



Table A-12

Grim Statistics

Table A-5 Part Time Status

The key take-away from this series are the millions of workers whose hours will rise before companies start hiring more workers.

Table B-2. Average weekly hours of production and nonsupervisory workers on private nonfarm payrolls

Population Estimates

Civilian Participation Rate

Year Men Women

1960 83.3 37.7

1970 79.7 43.3

1980 76.3 51.5

1985 76.3 54.5

1990 76.1 57.5

Participation Rate 1950-Present

Civilian Participation Rate Detail

Table A-1 Employment Status

Unemployment Classifications

Past Predictions





Wednesday, April 22, 2009

Note that the adverse scenario assumes a 10.3% unemployment rate at the end of 2010. Hells bells, it's highly likely unemployment far exceeds 10.3% before the end of 2009.

Sunday, June 07, 2009

Economics may be the "dismal science" but economists as a group sure seem to be an optimistic lot.



The consensus forecast of unemployment for 2009 was 8.4%. The Blue Chip Forecast, a survey of America's leading business economists that costs $875 annually. Blue Chip had the unemployment rate at 8.3% for 2009 and 8.7% for 2010.



the Fed had a mere 10% chance the unemployment numbers get as high as the adverse scenario. The adverse scenario for 2009 has already been exceeded unless you think unemployment has peaked and is going lower over the next several months.



Meanwhile the Survey of Professional Forecasters pegged the unemployment rate at 8.4% for 2009 and 8.8% for 2010 (now revised much higher as is always the case).



Across the board, the Fed's adverse scenarios were a cakewalk, especially the unemployment forecasts.

Friday, October 02, 2009

Sorry folks, I was one month early. In January I forecast the unemployment rate would hit 9.8% by August. Meanwhile, even though it was clear the Fed was wildly off base in its adverse scenario, the Fed upped it total to a mere 9.2% to 9.6% for the year as noted on May 21, 2009 in Fed's Economic Forecast Worsens; Still Ridiculously Optimistic.



The Fed's forecasts, released as part of the minutes from its April meeting, show that its staff now expects the unemployment rate to rise to between 9.2% and 9.6% this year. The central bank had forecast in January that the jobless rate would be in a range of 8.5% to 8.8%, but the unemployment rate topped that in April, hitting 8.9%.

Assumptions

Job losses are likely to continue for a minimum of another year.

When job gains start, they will be very slow at first, then pick up.

An extremely generous monthly job gain stat over the course of the year would be 150,000 jobs.

A falling participation rate will continue to mask reported unemployment.



Starting in 2013 the labor pool will start decreasing because of boomer demographics.

The noninstitutional population will rise by 2.5 million workers a year





Historical Recap

Labor Pool Analysis

Dave Rosenberg's Outlook

U.S. Unemployment Rate Headed For 12.0-13.0%.

Scenario

Number One

Unemployment Scenario 1 Data





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Extremely Generous Assumptions

I am assuming there will be job gains (on average) in 2010 even though history suggests otherwise.

I have the number of jobs gained per month increasing to 170,000 jobs per month for 2013 even though I think 150,000 is a more realistic maximum target for an entire year.

I have +150,000 jobs for 4 consecutive years through 2016.

I have the Labor Pool decreasing dramatically as a result of boomer demographics starting in 2014.This acts to lower the unemployment rate.

I have the participation rate falling every year, accelerating rapidly starting in 2014 all the way through 2020.



Labor Pool, Jobs, Participation Rate Projections

"On average, the economists don't expect unemployment to fall below 6% until 2013."

It could take until 2014-15 before we see a 5% handle on unemployment again," said Diane Swonk at Mesirow Financial.

Addendum:

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