I decided to predict job growth and thus unemployment rates going forward as the Obama Boom gains steam. The results were incredibly disappointing.
June 2010: 9.5%
December 2010: 8.7%
June 2011: 8.2%
December 2011: 7.7%
June 2012: 7.2%
December 2012: 7.1%
In other words, assuming I am right about the predicted Obama Boom, assuming it is of decent strength, and assuming it lasts uninterrupted until at least December 2012, three years, the unemployment rate in December 2012 will be around 7.1%. Although hugely better than the current 10%, 7.1% isn't exactly what we would call a Boom. That's how deep of a hole we are in as a result of 8 years of failed Bush policies, coupled with 8 years of total abdication of oversight responsibilities by Congress, including the last 2 years in which democrats had control of both houses of Congress. Nice work people.
My predictions on the general course of the economy since January 2009 have been good. Let's see if I can continue my recent economic forecasting, and put it to some good use. I am, of course, on record predicting an Obama Boom, starting about now, with job growth beginning before February. In this post, I decided to make some assumptions about the number of jobs created going forward and to crunch some numbers and thereby project the unemployment rate
In this post, I predict what the US unemployment rate is at various points in the future. The unemployment rate is of course a percentage, or a fraction, with the numerator being the number of unemployed people in the country and the denominator being the total work force (employed persons & unemployed persons who wish to work). The denominator does NOT count people not looking for work. So to take a simple example, if 10 people want work, and of the 10 9 are working and 1 is not, the unemployment rate is 10%. Thus in order to predict the unemployment rate, I must predict 2 things; (1) the number of net jobs created per month; and (2) the growth in the labor force. Predicting job growth is very hard, to say the least. Predicting labor force growth is quite easy in normal economic times. Coming out of a recession is the one time it is hard, and coming out of a deep recession it is especially hard.
The number of unemployed people are reduced each month by the number of net new jobs minus the growth in the labor force. That is, growth in the labor force tends to increase the unemployment rate, all other things (namely net job growth) being equal. For the mathematically inclined, number of people currently unemployed - (net new jobs created in December 2009 - growth in labor force in December 2009) = the number of people unemployed at the next report, in January 2010. To find the reported unemployment rate in January 2010, you take that new number of unemployed and divide it by the total labor force in January 2010.
That's how it works. I'm sure there's a simpler way to explain it to all of you, but I can't figure out how in a text format. I'm confident that if someone buys me a drink I can explain it better f2f.As of December 1, 2009, according to the Bureau of Labor Statistics (the most commonly accepted and most comprehensive source), there are 15.375 million unemployed people, and the Labor Force is 153.9 million. Hence the 10% unemployment rate widely reported in the media. Note that these figures come from the current population survey.
According to that survey, there are 138.5 million people working. 15.38 million unemployed + 138.5 million people working = 153.8 million for the total labor force. 15.38 million unemployed divided by 153.8 million total labor force = 10% unemployment. The total labor force does not perfectly equal the number of employed + the number of unemployed (as it should) due to rounding and other minor issues. Nevertheless, these are the numbers used by the bureau of labor statistics and reported on by the press.
According to the other major government employment survey, which attempts to accurately count the number of jobs, there are, as of December 1, 2009, 131 million non farm jobs, almost exactly. When you hear in the news that the economy created/destroyed X number of jobs in a given month, or year, that number is from this second survey. In the past, the number of jobs according to the second payroll survey has increased far faster than the number of jobs in the population survey. Thus the reported unemployment falls noticeably more slowly than the actual improvement which takes place in the job market. This is highly likely to happen in the coming Obama Boom. In any event, don't worry too much about this relatively minor statistical issue. If you read the rest of this post and the media reports in the coming months you'll understand my predictions (and, more importantly, what's going on in the labor market) just fine.In general, when our economy is weak, growth in the labor force slows or even stops, as many people despair of finding a job, stop looking for work, and thus are no longer counted as part of the labor force (discouraged workers). As the economy recovers, the number of people in the labor force increases faster than usual, as formerly discouraged workers begin to look for work again. This will have a very significant impact on the size of the labor force as the economy recovers in 2010 and 2011. Alan Greenspan estimated recently that the Labor force under normal circumstances grows about 100,000 per month. This figure is consistent with what I have read elsewhere, and I accept it. The labor force did not increase at all in 2008 and 2009 due to the weak economy. Given that the labor force did not increase at all in 2008 or 2009, it thus has 2.4 million fewer workers than it would have if the economy had remained reasonably strong. (24 months (I'm assuming no growth for December 2009) multiplied by 100,000 per month). This is a huge, huge number! As many of these people happily trickle back into the labor force, the reported unemployment rate will drop far more slowly than it otherwise would as strong job growth resumes in 2010 (see my predictions, below). In short, this very unnatural pause in the growth of the labor force means that absent truly spectacular job growth, the reported unemployment rate will stay quite high for years to come.
I am, for simplicity, estimating 1/3 of this 2.4 million people are added back into the labor force each of the next 3 years. That's highly unlikely to happen so precisely, of course. Instead, more will reenter the labor force as time goes on and the economy improves, thus convincing people they can find work. However (a) I can't really make even an educated guess how it would break out; and (b) doing so would mean a lot of extra work for little extra gain in the accuracy of my predictions.Accordingly, I assume for purposes of this post that the Labor force increases by 2 million per year for each of the next 3 years. This figure covers both the 1.2 million people that would normally be added to the labor force each year, plus the 800,000 per year for each of the next 3 years that are going to return to the labor force due to the stronger economy, as discussed above.
Two million people per year results in an average increase in the labor force of 166,666/month, for the next 3 years. This means that going forward if the economy gains 166,666 jobs in a given month the unemployment rate will stay the same (assuming no statistical fluctuations). If the economy gains 200,000 jobs per month for the entire year of 2010 (a halfway decent total, if a weak number at the start of an expansion), unemployment drops by only 400,000 people, a pathetic, godawful number for an entire YEAR early in a recovery. The unemployment rate would only drop by .4%, from 10% currently to 9.6%!!! Fortunately, I predict that job creation is going to be significantly stronger than 200,000 per month.
Note that I further assume that for the month of December 2009, there is no growth in the labor force and zero net jobs created. This assumption is merely for convenience.
Predicting how many jobs will be added per month, is of course very difficult. I could end up being way, way off. In addition, I predict a fairly smooth path to recovery. This is in fact unlikely to happen. Month to month, or even quarter-to-quarter, events are highly likely to unfold quite differently from how I predict. But over 6 month or year-long periods, my predictions may fairly be judged, as longer periods of time smooth out random fluctuations in both the economy and the federal statistics.
Here are my predictions, for all the world to see, and marvel at down the road:January-June 2010: 275,000 jobs created per month.
Unemployment rate projection for June 2010: 9.5% (with 154.877 million people in the Labor Force and 14.73 million people still unemployed!) Since I don't expect as many people to rejoin the labor force earlier in the Obama Boom as I do later on, my REAL prediction for unemployment for June 2010 is 9.4%.
I note that this is an exceptionally daring prediction, FAR more optimistic than nearly every private forecaster. My reasons for being so optimistic about this time period are:
1) More of the federal stimulus money will be being spent;
2) Businesses cut far more jobs in 2009 that was justified by the drop in output/orders. I call these "panic job cuts." These will, I predict, begin to be quickly reversed, as corporate America already realizes that the risk of a second Great Depression has been more or less eliminated and will soon realize that the Obama Boom has begun.
3) Rock bottom interest rates have had even longer to work their way through the economy;
4) A boatload of temporary workers, more than 500,000, will be hired for the census, mostly during this time period;
5) I think that the jobs survey is currently underestimating the number of jobs being created, thus my 250,000 per month estimate is less of an increase over what is currently going on that is apparent;
6) I expect the serious problem of banks being unwilling to loan money to the small business sector, probably the number 1 headwind the economy faces, to begin to be solved towards the end of this 6 month period
7) I expect mortgage and car loans to get slightly easier (less hard) to get during this time period;
July-December 2010: 355,000 jobs created per month (!)
Unemployment rate projection for December 2010: 8.7% (with 155.877 million people in the Labor Force and 13.6 million still unemployed!)
Now the job machine has really turned on. This is also a daring prediction. Basically, I'm predicting a very strong recovery in 2010, with GDP growth probably above 4% and very possibly above 5%. This is of course in line with my other various posts predicting an Obama Boom, but is WAY WAY off of the consensus economic forecast of the people with the ultra fancy degrees and years of experience. Well, pardon my immodesty, but barring some huge external event, like a new big war, or oil going back over $150 a barrel and staying there, I'm RIGHT and the fancy PHDs that make good money trying to predict the economy are WRONG. What makes this fun, of course, is that time will answer this question. At the end of 2010, I'll either be right, plenty close enough to declare victory or, if the economy is much weaker than I expect, just dead wrong. And it'll be clear to all that read my blog and all those I talk to.
January -June 2011: 300,000 jobs created per month.
Unemployment rate prediction for June 2011: 8.2% (with 156.877 million people in the Labor force and 12.8 million people still unemployed.
I expect at least a mild slowdown from the previous 6 months because temporary census workers will be laid off starting late in 2010, the stimulus' effect will have largely been felt. On the other hand, by this time it will be crystal clear to all that the recovery is very real, and business investment and consumer spending could both propel upwards rather quickly.
I should add that trying to predict minor fluctuations a year out is, well, impossible. Predicting the macro trend of the economy is incredibly difficult, predicting minor changes within that trend is well-nigh impossible.
July-December 2011 255,000 jobs created per month.
Unemployment rate prediction for December 2011: 7.7% (with 157.877 million people in the Labor force and 12.27 million people still unemployed.
I expect monetary policy to tighten (interest rates increasing and the fed rapidly slowing the growth of the money supply and ending various extraordinary programs) beginning in about July 2010 and picking up speed through the end of 2010. The strong effects of these changes should begin to be felt in the July - December 2011 time frame.
January-June 2012 295,000 jobs created per month. The economy rebounds from a slight slowdown the previous 6 months, just in time to ensure Obama's reelection.
Unemployment rate prediction for June 2012: 7.2% (with 158.877 million people in the Labor force and 11.5 million people still unemployed.
This number is crucially important to Obama's reelection chances. If I'm way too optimistic here, and the actual unemployment number is over say 8.5%, he's in trouble. Over 9% he's toast. If, however, I'm right, and the unemployment rate is fairly close to 7.2%, and has been dropping for a long term, I think he'll win by more than 10 points.July-December 2012 200,000 jobs created per month
Unemployment rate prediction for December 2012: 7.1% (with 159.877 million people in the Labor force and 11.3 million people still unemployed.
The economic hole we are in is SO DEEP that even after 3 years of pretty damn good growth in the number of jobs in America, the unemployment rate will still be 7.1%, a figure well above the average for the any decade since the 1930s. This is really not good.
Its of course possible that I'm not being optimistic enough. However, even a REALLY strong Obama Boom would still only bring the unemployment rate in December 2012 down to around 6%, still not full employment.
A final word of caution: Needless to say, my predictions after say June 2010 are merely guesses. But I have to make them in order to even take a stab at projecting/predicting the national unemployment rate in the future. And you wonder why economic forecasts are so very unreliable? The actual results are unlikely to be this smooth. But if I'm pretty close on each of these I will have done a spectacular job at predicting the recovery of the shattered job market. Conversely, if I'm way off, well I'll join the crowd.
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