Downward Spiral: Unemployment Bound for Double Digits

• Non-farm payrolls: -533k


• Unemployment rate: 6.7%


• Hourly earnings: 0.4%


• Average workweek: 33.5 hours
  

The US economy shed an additional 533,000 jobs during the month of November, the steepest loss since December of 1974 and 57% higher than the median analyst prediction. The recent cuts propelled the unemployment rate to 6.7% as widespread losses impacted factories, financials, retailers, services, hospitality, construction and nearly every corner of the economy.

While significant noise exists on a monthly basis for unemployment estimates, the overall trend certainly suggests continued rises in the rate as the recession deepens. Both September and October estimates were revised upwards, and rather significantly. October's job losses were revised to show a cut of 320,000 jobs from a previously reported 240,000, while September's losses were 41% higher than originally reported. Little doubt should exist that November's estimate will experience the same revisions driving the unemployment rate toward, or even over, 7%. When you consider the number of individuals who have "given up" and left the workforce, or that are working part-time (lowest average workweek since tracking began) but want to work full-time, the downward spiral of GDP and unemployment will only be exacerbated. Double digit unemployment is only a few reports away, if it isn't truly here already.

"The only way out is for the government to be extremely aggressive on every front: The Federal Reserve, economic stimulus, help for the automakers, extending out TARP money, everything, because we're now in a self-reinforcing negative cycle, and the only way out is for the government to fill the void," noted Mark Zandi, Moody's Economy.com chief economist.

It's clear that government spending needs to be increased, and done so immediately. Inflation is currently of no concern, crowding out holds little weight, and the Keynesian theory that $1 of government spending is more beneficial than $1 of tax cuts must be revered in the short term. It should be noted that the only employment gains occurred in the government, education and health services.

As Harvard economist Greg Mankiw puts it, "we need to step on the gas."

Update:

The Bureau of Labor Statistics does more than report the headline 6.7% unemployment number (U-3). On page 19 of the November Report, the BLS outlines all measures of unemployment. U-6, total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers, comes in at a whopping 12.5%.