Yesterday, the Department of Labor reported that initial weekly unemployment claims rose to 576,000. That marked the second consecutive weekly increase. The figure came in above both the consensus forecast of 550,000 and the highest estimate among economists of 559,000. In addition, the four-week moving average for initial weekly unemployment claims rose 4,250 to 570,000.
Although it is still a little too soon to suggest that a fresh increase is now underway, past recessions have typically seen initial weekly unemployment claims rise anew for a time before finally falling off to levels compatible with net job creation.
Given past historic experience, not to mention the dynamics associated with the current recession, the following still appears likely:
• A period during which weekly unemployment claims rise anew, perhaps approaching or reaching 600,000 during one or two weeks.
• A persistence of initial weekly unemployment claims remaining at or above 500,000, for most of the rest of this year, though some fluctuations below 500,000 are possible.
• A low possibility that weekly unemployment claims could fall to 450,000 toward the end of the year.
• A continuing rise in the national unemployment rate from 9.4% through the rest of this year, though minor fluctuations with some small dips are also possible ahead of the peak unemployment rate.
&&
Showing posts with label unemployment rate. Show all posts
Showing posts with label unemployment rate. Show all posts
Friday, August 21, 2009
Wednesday, July 8, 2009
Credit Card Charge-offs Could Reach 8%-10%
Yesterday, CNBC reported:
Soaring U.S. unemployment and a shrinking economy drove delinquencies on credit card debt and home equity loans to all-time highs in the first quarter as a record number of cash-strapped consumers fell behind on their bills.
The latest data indicate that credit card charge-offs, which stood at 7.49% in the First Quarter of 2009 will likely rise further.
Moreover, if the experience with the previous two recessions is reasonably representative, a peak quarterly charge-off rate of 8% to 10% is possible.
If one examines the experience with the past two recessions, one finds the following:
• The quarterly credit card charge-off rate reached a higher peak in the 2001 recession than the 1990-91 recession, despite a milder contraction in peak-to-trough real GDP.
• The quarterly credit card charge-off rate peaked 4 quarters after the 1990-91 recession ended and 1 quarter after the 2001 recession concluded. The 1990-91 recession was triggered, in part, by a housing bust that encompassed 1989-1994. Considering that the current recession was precipitated by the collapse of a massive housing bubble, a delayed peak akin to the 1990-91 recession is probably more likely than not.
• The amount of personal-sector debt relative to personal-sector liquid assets at the start of a recession appears to have some bearing on the magnitude of the peak credit card charge-off rate. Personal-sector indebtedness relative to liquid assets was markedly higher in 2001 than in 1990. In other words, declining credit quality likely explains the higher peak charge-off rate for the 2001 recession, even as the loss of economic output was markedly smaller than during the 1990-91 recession.
• The amount of personal-sector debt relative to total personal-sector assets mattered less. The need for liquidity and reality that non-liquid assets are difficult to convert into cash during financial market turmoil possibly helps explain the apparently weaker link tying personal-sector debt with total personal-sector assets than the relationship of personal-sector debt with personal sector liquid assets.
That the current recession is the worst of the post-World War II period with a 3.1% decline in real GDP through the First Quarter and the unemployment rate has reached 9.5%, which is well above the peak figures for the 1990-91 and 2001 recessions, argues for a higher quarterly peak charge-off rate than occurred during either of those earlier recessions. Even worse, the ongoing recession unfolded at a time when the personal sector had even higher debt relative to its liquid assets than it did during either of the previous two recessions. As a result, the quarterly credit card charge-off rate is likely to continue to climb in coming months and a peak figure in the 8% to 10% range is likely.
In turn, that development will add to the stresses currently impacting the nation’s weakened financial system. Those additional stresses could culminate in numerous additional bank failures. In addition, increased financial system fragility could lead to a delayed and/or slower and weaker rebound in economic growth than would otherwise be the case.
&&
Soaring U.S. unemployment and a shrinking economy drove delinquencies on credit card debt and home equity loans to all-time highs in the first quarter as a record number of cash-strapped consumers fell behind on their bills.
The latest data indicate that credit card charge-offs, which stood at 7.49% in the First Quarter of 2009 will likely rise further.
Moreover, if the experience with the previous two recessions is reasonably representative, a peak quarterly charge-off rate of 8% to 10% is possible.
If one examines the experience with the past two recessions, one finds the following:
• The quarterly credit card charge-off rate reached a higher peak in the 2001 recession than the 1990-91 recession, despite a milder contraction in peak-to-trough real GDP.
• The quarterly credit card charge-off rate peaked 4 quarters after the 1990-91 recession ended and 1 quarter after the 2001 recession concluded. The 1990-91 recession was triggered, in part, by a housing bust that encompassed 1989-1994. Considering that the current recession was precipitated by the collapse of a massive housing bubble, a delayed peak akin to the 1990-91 recession is probably more likely than not.
• The amount of personal-sector debt relative to personal-sector liquid assets at the start of a recession appears to have some bearing on the magnitude of the peak credit card charge-off rate. Personal-sector indebtedness relative to liquid assets was markedly higher in 2001 than in 1990. In other words, declining credit quality likely explains the higher peak charge-off rate for the 2001 recession, even as the loss of economic output was markedly smaller than during the 1990-91 recession.
• The amount of personal-sector debt relative to total personal-sector assets mattered less. The need for liquidity and reality that non-liquid assets are difficult to convert into cash during financial market turmoil possibly helps explain the apparently weaker link tying personal-sector debt with total personal-sector assets than the relationship of personal-sector debt with personal sector liquid assets.
That the current recession is the worst of the post-World War II period with a 3.1% decline in real GDP through the First Quarter and the unemployment rate has reached 9.5%, which is well above the peak figures for the 1990-91 and 2001 recessions, argues for a higher quarterly peak charge-off rate than occurred during either of those earlier recessions. Even worse, the ongoing recession unfolded at a time when the personal sector had even higher debt relative to its liquid assets than it did during either of the previous two recessions. As a result, the quarterly credit card charge-off rate is likely to continue to climb in coming months and a peak figure in the 8% to 10% range is likely.
In turn, that development will add to the stresses currently impacting the nation’s weakened financial system. Those additional stresses could culminate in numerous additional bank failures. In addition, increased financial system fragility could lead to a delayed and/or slower and weaker rebound in economic growth than would otherwise be the case.
&&
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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