As U.S. stocks have continued to rise from their March 9, 2009 bottom, a development that typically precedes the end of a recession by 3-6 months, speculation concerning how high stocks might rise by year-end has abounded. Historical evidence from the six most recent recessions suggests that the upside potential could be limited relative to the 982.18 figure at which the S&P 500 closed on Monday.
The following are implied closing figures based on the past six recessions, using the S&P 500’s March 9 closing price of 676.53 as the bottom.
1960-61 Recession: 932.24
1969-70 Recession: 974.23
1980 Recession: 988.95
1981-82 Recession: 1,121.34
1990-91 Recession: 920.41
2001 Recession: 907.94
Mean: 984.69
Median: 972.59
Ultimately, how key factors play out will determine the magnitude and duration of the current recession and its impact on corporate profits in 2009. Some of those factors include:
• The continuing evolution of the economic challenges, likely impacting commercial real estate and consumer credit.
• Long-term deleveraging that reduces the role of the consumer in the overall economy. Currently, real personal consumption expenditures account for just over 70% of GDP. That figure could slowly decline below 70% of GDP in succeeding quarters.
• Impact of rapidly rising U.S. debt levels. If foreign capital inflows slow or even reverse, a currency crisis could unfold.
• Possible geopolitical shocks that could complicate or exacerbate the nation's challenges.
For now, with the economy showing signs of stabilizing, the historic experience suggests that the S&P 500 could end 2009 within 100 points of 1,000 should the recession end in the third or fourth quarter of this year. Such a close would indicate that the sharpest gains in equities prices have already occurred.
&&
Showing posts with label recession. Show all posts
Showing posts with label recession. Show all posts
Tuesday, July 28, 2009
Friday, July 10, 2009
Is the U.S. in the Midst of a “Lost Decade” for Stocks?
Typically, U.S. stocks bottom out 3-6 months before the end of a recession and they return to their pre-recession highs, on average, about 3.7 years after having reached that high. The experience following U.S. recessions since 1950 is as follows:
• July 1953-May 1954 recession: Pre-recession peak: 293.79, January 5, 1953; First close at or above that level: 294.03, February 4, 1954; Interval: 1 year, 30 days (395 days).
• August 1957-April 1958 recession: Pre-recession peak: 521.05, April 6, 1956; First close at or above that level: 523.40, September 15, 1958; Interval: 2 years, 5 months, 9 days (892 days).
• April 1960-February 1961 recession: Pre-recession peak: 685.47, January 5, 1960; First close at or above that level: 692.06, April 10, 1961; Interval: 1 year, 3 months, 5 days (461 days).
• December 1969-January 1970 recession: Pre-recession peak: 985.21, December 3, 1968; First close at or above that level: 988.26, November 9, 1972; Interval: 3 years, 11 months, 6 days (1,437 days).
• November 1973-March 1975 recession: Pre-recession peak: 1,051.70, January 11, 1973; First close at or above that level: 1,065.49, November 3, 1982; Interval: 9 years, 9 months, 23 days (3,583 days); Two oil price shocks, an extended period of high inflation, and two recessions (January-July 1980 and July 1981-November 1982) occurred during that nearly 10-year interval.
• July 1990-November 1991 recession: Pre-recession peak: 2,999.75, July 17, 1990; First close at or above that level: 3,004.46, April 17, 1991; Interval: 9 months (274 days).
• March 2001-November 2001 recession: Pre-recession peak: 11,722.98, January 14, 2000; First close at or above that level: 11,727.34, October 3, 2006; Interval: 6 years, 8 months, 19 days (2,454 days); The dot-com bubble burst, the federal government saw budget surpluses that emerged during the late 1990s give way to renewed significant budget deficits, and the September 11, 2001 terrorist attacks occurred during that nearly 7-year interval.
However, in the earlier experience, there have been two occasions during which the Dow Jones Industrials failed to reach its pre-recession peak for 10 years or longer. Those seminal economic events were the Panic of 1907 that produced a credit crunch and severe recession in which real GDP fell 10.8% and the Great Depression during which real GDP contracted by 26.5% in the 1929-33 timeframe. In addition, following the collapse of Japan’s twin stock market and real estate bubbles, its Nikkei 225 Index has remained much below its December 1989 top for more than 19 years.
The Panic of 1907: The Dow Jones Industrials closed at 103.00 on January 19, 1906. The Dow Jones Industrials did not return to that level until it closed at 103.11 on September 28, 1916, an interval of 10 years, 8 months, and 9 days (3,905 days).
The Great Depression: The Dow Jones Industrials closed at 381.17 on September 3, 1929. The Dow Jones Industrials did not return to that level until it closed at 382.74 on November 23, 1954, an interval of 25 years, 2 months, and 2 days (9,212 days).
Japan’s “Lost Decade” of the 1990s-2000s: The Nikkei 225 Index closed at 38,915.87 on December 29, 1989. Through July 10, 2009, the Nikkei has failed to return to that level. That is an interval of 19 years, 6 months, and 11 days (7,133 days). Its last closing price was 9,287.28 on July 10, a figure that is 76% below its December 1989 crest.
In terms of the ongoing “Great Recession” in the United States, the Dow Jones Industrials peaked at 14,164.53 on October 9, 2007. On July 9, the Dow Jones Industrials closed at 8,183.17, which is 42% below its pre-recession peak.
Four possible scenarios could result in the Dow Jones Industrials taking a decade or longer to return to its pre-recession peak:
• In the absence of visible signs of economic recovery, federal policy failures, and a generally unrelenting bear market that turns aside repeated rally attempts, investors could make fundamental changes in their perceptions of risk concerning equities. That development would lead to a long-term reduction in demand for stocks.
• The economic recovery from the current severe recession would be fairly brief. Perhaps, a double-dip recession scenario would unfold. At the same time, on account of a fragile financial system that takes time to heal and increased leverage that needs to be worked off by households, recessions could grow more frequent in succeeding years. During the pre-World War II era (1857 through 1945), the median duration of economic expansions was 22 months and the mean length was 29 months. During the post-World War II period, those figures more than doubled to 45 and 58 months respectively. There is no assurance that the post-World War II experience of notably longer business expansions will persist.
• The U.S. could still experience a systemic financial crisis that severely damages its financial institutions, the development and onset of deflation from a premature withdrawal of fiscal and monetary stimulus, or a currency crisis should it encounter difficulty raising funds to support its economic stimulus efforts and underwrite possible new programs.
• A major geopolitical shock or shocks that have a substantial adverse impact on the U.S. and international economies. Such shocks could include, but would not be limited to the outbreak of conflict in a geopolitically crucial part of the world, the collapse of a government and radical changes in policy in a nation whose economy is intensely interconnected with the world’s major economies, a catastrophic natural disaster that devastates a globally-important financial center.
Conclusion:
Given the past experience following the severe 1973-75 recession, the collapse of the dot-com bubble, there is a reasonably likely prospect that the Dow Jones Industrials may not return to its pre-recession high of 14,164.53 until late in 2014 or beyond. The effectiveness of ongoing political efforts to shore up the nation's banking system and revive the economy and whether or not there are additional significant economic and geopolitical shocks will be critical in influencing the timing of a stock market recovery. Should those efforts fail to produce the desired impact, or worse, should they result in consequences that adversely impact or disrupt the nation’s growth trajectory, there is a genuine possibility that the Dow might not return to that level for a decade or longer after its October 9, 2007 record close.
&&
• July 1953-May 1954 recession: Pre-recession peak: 293.79, January 5, 1953; First close at or above that level: 294.03, February 4, 1954; Interval: 1 year, 30 days (395 days).
• August 1957-April 1958 recession: Pre-recession peak: 521.05, April 6, 1956; First close at or above that level: 523.40, September 15, 1958; Interval: 2 years, 5 months, 9 days (892 days).
• April 1960-February 1961 recession: Pre-recession peak: 685.47, January 5, 1960; First close at or above that level: 692.06, April 10, 1961; Interval: 1 year, 3 months, 5 days (461 days).
• December 1969-January 1970 recession: Pre-recession peak: 985.21, December 3, 1968; First close at or above that level: 988.26, November 9, 1972; Interval: 3 years, 11 months, 6 days (1,437 days).
• November 1973-March 1975 recession: Pre-recession peak: 1,051.70, January 11, 1973; First close at or above that level: 1,065.49, November 3, 1982; Interval: 9 years, 9 months, 23 days (3,583 days); Two oil price shocks, an extended period of high inflation, and two recessions (January-July 1980 and July 1981-November 1982) occurred during that nearly 10-year interval.
• July 1990-November 1991 recession: Pre-recession peak: 2,999.75, July 17, 1990; First close at or above that level: 3,004.46, April 17, 1991; Interval: 9 months (274 days).
• March 2001-November 2001 recession: Pre-recession peak: 11,722.98, January 14, 2000; First close at or above that level: 11,727.34, October 3, 2006; Interval: 6 years, 8 months, 19 days (2,454 days); The dot-com bubble burst, the federal government saw budget surpluses that emerged during the late 1990s give way to renewed significant budget deficits, and the September 11, 2001 terrorist attacks occurred during that nearly 7-year interval.
However, in the earlier experience, there have been two occasions during which the Dow Jones Industrials failed to reach its pre-recession peak for 10 years or longer. Those seminal economic events were the Panic of 1907 that produced a credit crunch and severe recession in which real GDP fell 10.8% and the Great Depression during which real GDP contracted by 26.5% in the 1929-33 timeframe. In addition, following the collapse of Japan’s twin stock market and real estate bubbles, its Nikkei 225 Index has remained much below its December 1989 top for more than 19 years.
The Panic of 1907: The Dow Jones Industrials closed at 103.00 on January 19, 1906. The Dow Jones Industrials did not return to that level until it closed at 103.11 on September 28, 1916, an interval of 10 years, 8 months, and 9 days (3,905 days).
The Great Depression: The Dow Jones Industrials closed at 381.17 on September 3, 1929. The Dow Jones Industrials did not return to that level until it closed at 382.74 on November 23, 1954, an interval of 25 years, 2 months, and 2 days (9,212 days).
Japan’s “Lost Decade” of the 1990s-2000s: The Nikkei 225 Index closed at 38,915.87 on December 29, 1989. Through July 10, 2009, the Nikkei has failed to return to that level. That is an interval of 19 years, 6 months, and 11 days (7,133 days). Its last closing price was 9,287.28 on July 10, a figure that is 76% below its December 1989 crest.
In terms of the ongoing “Great Recession” in the United States, the Dow Jones Industrials peaked at 14,164.53 on October 9, 2007. On July 9, the Dow Jones Industrials closed at 8,183.17, which is 42% below its pre-recession peak.
Four possible scenarios could result in the Dow Jones Industrials taking a decade or longer to return to its pre-recession peak:
• In the absence of visible signs of economic recovery, federal policy failures, and a generally unrelenting bear market that turns aside repeated rally attempts, investors could make fundamental changes in their perceptions of risk concerning equities. That development would lead to a long-term reduction in demand for stocks.
• The economic recovery from the current severe recession would be fairly brief. Perhaps, a double-dip recession scenario would unfold. At the same time, on account of a fragile financial system that takes time to heal and increased leverage that needs to be worked off by households, recessions could grow more frequent in succeeding years. During the pre-World War II era (1857 through 1945), the median duration of economic expansions was 22 months and the mean length was 29 months. During the post-World War II period, those figures more than doubled to 45 and 58 months respectively. There is no assurance that the post-World War II experience of notably longer business expansions will persist.
• The U.S. could still experience a systemic financial crisis that severely damages its financial institutions, the development and onset of deflation from a premature withdrawal of fiscal and monetary stimulus, or a currency crisis should it encounter difficulty raising funds to support its economic stimulus efforts and underwrite possible new programs.
• A major geopolitical shock or shocks that have a substantial adverse impact on the U.S. and international economies. Such shocks could include, but would not be limited to the outbreak of conflict in a geopolitically crucial part of the world, the collapse of a government and radical changes in policy in a nation whose economy is intensely interconnected with the world’s major economies, a catastrophic natural disaster that devastates a globally-important financial center.
Conclusion:
Given the past experience following the severe 1973-75 recession, the collapse of the dot-com bubble, there is a reasonably likely prospect that the Dow Jones Industrials may not return to its pre-recession high of 14,164.53 until late in 2014 or beyond. The effectiveness of ongoing political efforts to shore up the nation's banking system and revive the economy and whether or not there are additional significant economic and geopolitical shocks will be critical in influencing the timing of a stock market recovery. Should those efforts fail to produce the desired impact, or worse, should they result in consequences that adversely impact or disrupt the nation’s growth trajectory, there is a genuine possibility that the Dow might not return to that level for a decade or longer after its October 9, 2007 record close.
&&
Thursday, July 2, 2009
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.
&&
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.
&&
Wednesday, July 1, 2009
U.S. Unemployment Rate Likely To Rise Into Next Year
On June 30, 2009, The Conference Board revealed that consumer confidence had fallen in June. Worries about the job market and business conditions were largely responsible for the decline.
In part, The Conference Board’s statement explained:
Says Lynn Franco, Director of The Conference Board Consumer Research Center: "After back-to-back months of strong gains, Consumer Confidence retreated in June. The decline in the Present Situation Index, caused by a less favorable assessment of business conditions and employment, continues to imply that economic conditions, while not as weak as earlier this year, are nonetheless weak..."
Consumers' appraisal of present-day conditions was less favorable in June. Those claiming business conditions are "good" decreased to 8.0 percent from 8.8 percent, while those saying conditions are "bad" increased to 45.6 percent from 44.5 percent. Consumers’ assessment of the labor market was also less favorable. Those stating jobs are "hard to get" increased to 44.8 percent from 43.9 percent. Those saying jobs are "plentiful" decreased to 4.5 percent from 5.8 percent.
Consumer worries about the unemployment rate raise the all-important question as to when the currently climbing level of unemployment will peak and then begin to recede. The historic experience suggests that the unemployment rate probably will not peak until next year.
The average duration of unemployment is a lagging indicator. Therefore, reversals in the unemployment rate usually commence some time after a business cycle has already peaked or troughed.
An examination of the ten post-World War II recessions reveals the following concerning the timing of the peak unemployment rate:
• At the end of the recession: 2
• 1 month after the end of the recession: 1
• 2 months after the end of the recession: 1
• 3 months after the end of the recession: 2
• 5 months after the end of the recession: 1
• 9 months after the end of the recession: 1
• 12 months or more after the end of the recession: 2
In the above sample 40% of the cases saw the unemployment rate peak 2 or fewer months after the end of the recession. 60% of the cases saw the unemployment rate peak 3 or more months after the end of the recession, and half of those cases experienced a peak unemployment rate 6 or more months after the end of the recession.
Combining the historic experience with the structural dynamics behind the recession suggests that the unemployment rate will probably peak well after the current recession comes to an end. Continuing financial system fragility, the ongoing credit crunch, deleveraging by households, and the cause of the recession (an asset bubble) indicate a delayed recovery in employment.
Three cases from the post-World War II experience are particularly relevant:
December 1969-November 1970 Recession:
• Underlying cause: A credit crunch that erupted in 1966
• Timing of the peak unemployment rate: 9 months after the recession ended
July 1990-March 1991 Recession:
• Underlying causes: Regional real estate bubble, S&L crisis
• Timing of the peak unemployment rate: 15 months after the recession ended
March 2001-November 2001 Recession:
• Underlying cause: Dot Com bubble burst
• Timing of the peak unemployment rate: 19 months after the recession ended
A delayed recovery in employment suggests a higher peak unemployment rate. In general, the longer it takes for the unemployment rate to peak, the greater the rise is from the unemployment rate that prevailed at the end of a recession.
On average, for every month it takes for the unemployment rate to peak, the unemployment rate rises nearly 0.8% from the unemployment rate at the time the recession ended. For example, if the unemployment rate was 6% at the end of a recession, and the unemployment rate continued to climb for 6 additional months, the data would imply a 6.3% peak rate of unemployment.
Therefore, were the unemployment rate to range from 9.5% to 10.0% at the time the present recession ends, and were the unemployment rate to continue to climb for 6-12 additional months, the peak unemployment rate could range from 9.9% (in the case of a 9.5% rate that peaks 6 months later) to 10.9% (in the case of a 10.0% rate that peaks 12 months later). In the case of a rate that peaks 18 months later, there would be an implied range of 10.8% to 11.4%.
All said, assuming the recession ends in the Third Quarter of 2009, it appears likely that the unemployment rate will not peak until some time next year. There is a possibility that it will not peak until some time in 2011. Finally, a 10% or above peak unemployment rate looks realistic at this time.
&&
In part, The Conference Board’s statement explained:
Says Lynn Franco, Director of The Conference Board Consumer Research Center: "After back-to-back months of strong gains, Consumer Confidence retreated in June. The decline in the Present Situation Index, caused by a less favorable assessment of business conditions and employment, continues to imply that economic conditions, while not as weak as earlier this year, are nonetheless weak..."
Consumers' appraisal of present-day conditions was less favorable in June. Those claiming business conditions are "good" decreased to 8.0 percent from 8.8 percent, while those saying conditions are "bad" increased to 45.6 percent from 44.5 percent. Consumers’ assessment of the labor market was also less favorable. Those stating jobs are "hard to get" increased to 44.8 percent from 43.9 percent. Those saying jobs are "plentiful" decreased to 4.5 percent from 5.8 percent.
Consumer worries about the unemployment rate raise the all-important question as to when the currently climbing level of unemployment will peak and then begin to recede. The historic experience suggests that the unemployment rate probably will not peak until next year.
The average duration of unemployment is a lagging indicator. Therefore, reversals in the unemployment rate usually commence some time after a business cycle has already peaked or troughed.
An examination of the ten post-World War II recessions reveals the following concerning the timing of the peak unemployment rate:
• At the end of the recession: 2
• 1 month after the end of the recession: 1
• 2 months after the end of the recession: 1
• 3 months after the end of the recession: 2
• 5 months after the end of the recession: 1
• 9 months after the end of the recession: 1
• 12 months or more after the end of the recession: 2
In the above sample 40% of the cases saw the unemployment rate peak 2 or fewer months after the end of the recession. 60% of the cases saw the unemployment rate peak 3 or more months after the end of the recession, and half of those cases experienced a peak unemployment rate 6 or more months after the end of the recession.
Combining the historic experience with the structural dynamics behind the recession suggests that the unemployment rate will probably peak well after the current recession comes to an end. Continuing financial system fragility, the ongoing credit crunch, deleveraging by households, and the cause of the recession (an asset bubble) indicate a delayed recovery in employment.
Three cases from the post-World War II experience are particularly relevant:
December 1969-November 1970 Recession:
• Underlying cause: A credit crunch that erupted in 1966
• Timing of the peak unemployment rate: 9 months after the recession ended
July 1990-March 1991 Recession:
• Underlying causes: Regional real estate bubble, S&L crisis
• Timing of the peak unemployment rate: 15 months after the recession ended
March 2001-November 2001 Recession:
• Underlying cause: Dot Com bubble burst
• Timing of the peak unemployment rate: 19 months after the recession ended
A delayed recovery in employment suggests a higher peak unemployment rate. In general, the longer it takes for the unemployment rate to peak, the greater the rise is from the unemployment rate that prevailed at the end of a recession.
On average, for every month it takes for the unemployment rate to peak, the unemployment rate rises nearly 0.8% from the unemployment rate at the time the recession ended. For example, if the unemployment rate was 6% at the end of a recession, and the unemployment rate continued to climb for 6 additional months, the data would imply a 6.3% peak rate of unemployment.
Therefore, were the unemployment rate to range from 9.5% to 10.0% at the time the present recession ends, and were the unemployment rate to continue to climb for 6-12 additional months, the peak unemployment rate could range from 9.9% (in the case of a 9.5% rate that peaks 6 months later) to 10.9% (in the case of a 10.0% rate that peaks 12 months later). In the case of a rate that peaks 18 months later, there would be an implied range of 10.8% to 11.4%.
All said, assuming the recession ends in the Third Quarter of 2009, it appears likely that the unemployment rate will not peak until some time next year. There is a possibility that it will not peak until some time in 2011. Finally, a 10% or above peak unemployment rate looks realistic at this time.
&&
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