Perspective on Unemployment

This morning’s unemployment numbers show a continued deterioration in the economy in November.  Much is being made of the unexpectedly large decline in Non-Farm Payrolls, a fall of 553,000.  Although this is the largest drop since 1974, it is important to keep in mind that the labor force has grown substantially in the intervening 30-odd years.  A better measure for historical comparisons is the unemployment rate.  This rate also increased to 6.7%.  However, it’s important to keep this in perspective.  For example, despite the constant references to the Great Depression, the rate then was about 25%. 

I do believe that unemployment will continue to increase, but appropriate policy responses need to be measured against the need.   One of the criticisms of our past monetary policy has been that the Fed has careened between extremes: too tight and then way too loose.  At least the Fed has the ability to correct and change course.  Some of the heavy-handed fiscal stimulus policies being discussed hold the potential to go too far — and fiscal policy has proven to be much harder to change course — Congress, like all of us, prefers spending money to paying the bill.

For some better perspective, here’s the history of the unemployment rate (persons over 16, seasonally adjusted) since 1970.  

1/70 - 11/08

Unemployment: Jan 1970 to Nov 2008

The source for the data is the Bureau of Labor Statistics website.  For those so inclined, the BLS has put together a terrific site which allows for easy access to intricate data.

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