Unemployment Rate and Duration of Unemployment Increase in June

The Bureau of Labor Statistics’ Employment Situation Report for June 2009 revealed that the nation lost another 467,000 jobs during the month. At the same time, the unemployment rate ticked up to 9.5%. That is its highest figure since August 1983. Given historical experience following the end of post-World War II recessions and the underlying dynamics associated with the current recession, the unemployment rate will likely to rise through the rest of this year before peaking some time next year.

Three snippets from the Employment Situation Report follow.

A 9.5% Unemployment Rate:The unemployment rate reached 9.5% on what appears to be an all but inevitable march to 10% and higher. A departure of 155,000 persons from the labor force somewhat mitigated the rise in June’s unemployment rate. Had those persons remained in the labor force, the monthly unemployment rate would likely have approached or reached 9.6%.

A Dramatic Lengthening of the Median Duration of Unemployment:
In June, the median duration of unemployment rose 20% from 14.9 weeks to 17.9 weeks. That data was presaged in The Conference Board’s June 2009 consumer confidence survey in which the percentage of respondents stating that jobs were “hard to find” increased from 43.9% to 44.8%. June’s increase follows on the heels of a 19% increase in the median duration of unemployment in May. For the second quarter, the median duration of unemployment rose 59.8%. At the same time, the number of people unemployed for 27 weeks or longer increased 37.7%.

Should those trends persist, there is a risk that the recent stabilization of real personal consumption expenditures could be undermined, especially if households intensify their efforts to save. In addition, increases in the charge-off and delinquency rates on residential real estate loans and credit card balances could persist. In turn, those developments could delay or weaken any near-term economic recovery.

Another Dip in the Civilian Labor Force:
Barring a more robust economic recovery than appears likely at this time, the civilian labor force as a percentage of the civilian noninstitutional population aged 16 and older is likely to average below 66.0% for the first time since 1988. That could be an indication of a structural component to the unemployment situation. Were those people to return to the labor force, that development would push the unemployment rate higher. For example, using the June 2009 data, a civilian labor force that came to 66.0% of the civilian noninstitutional population would be 606,000 higher than the reported figure. If all those additional persons were unemployed at the onset and had to look for work, the unemployment rate would have been 9.9% instead of 9.5%. Following the onset of an economic recovery, one can expect a gradual recovery in the civilian labor force as some reenter the civilian labor force. In turn, that development will provide some additional stickiness to the unemployment rate.

Conclusion:
The most recent unemployment data suggests that significant risks that could delay or undermine a near-term economic recovery persist. The major transmission mechanisms for a playing out of those risks would be through weaker real personal consumption expenditures and a further erosion in residential real estate and consumer credit payments. The dramatic lengthening in the median duration of unemployment, growth in the number of those unemployed for 27 weeks or longer, and decreases in the civilian labor force as a share of the civilian noninstitutional population hint at an emerging structural component to the rising unemployment rate. With the financial services and automobile manufacturing sectors likely to comprise a smaller share of the overall economy than they did in the closing years of the housing bubble that collapsed in 2007, some increase in the structural unemployment rate appears more likely than not. Future data will determine whether a larger structural component leads to a higher average rate of unemployment than had been the case during the past 20 years.

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