Should Americans brace themselves for European-style unemployment?

[Heracles 417]

Should Americans brace themselves for European-style unemployment?

Dan Burrows

Nov 17th 2009 at 4:00PM

It's no secret we're poised for the Mother of All Jobless Recoveries. Federal Reserve Chairman Ben Bernanke can't just spew that out, of course, but his remarks Monday -- and economists' estimates -- make the prognosis for the nation's unemployed morbidly grim.

Unemployment is a lagging indicator, meaning it won't bounce back until well after the recovery is underway. But even then, the consensus is that joblessness will improve at a glacially slow pace -- so woe unto all of us if the consensus is wrong and the outlook is even worse.

That makes the predictions of our more bearish economists and analysts almost too horrifying to contemplate. As such, we're not having John Mauldin over for tea anytime soon. The prolific financial writer and president of Millennium Wave Investments and his buddy Michael Shedlock, an advisor representative at SitkaPacific Capital Management, have been crunching the unemployment data. They conclude that the unemployment rate won't hit 5% (or so-called full employment) until -- best-case scenario -- 2020.

Before we get into Mauldin and Shedlock's three grim scenarios, let's have a quick recap of where we stand now. The official unemployment rate stands at 10.2% -- nearly a three-decade high -- and is closer to 18% if you count the folks who have given up looking for work. Economists, on average, expect the rate to inch up to 10.3% by the end of the year and fall only to 9.8% by the end of next year, according the The Wall Street Journal's latest economic forecasting survey.

Meanwhile, the economy has shed about 8 million private-sector jobs in the last two years, even as the U.S. needs to add about 125,000 jobs a month just to absorb the new folks entering the workforce. Put the two together, and the economy would need to create about 15 million jobs over the next five years just to get back to where we started at the inception of the Great Recession, Mauldin calculates.

Bad and Ugly

But wait -- it gets worse. What Maudlin is saying is that the U.S. needs to add 250,000 jobs a month every month for five years. That's an unprecedented level of job creation. Over the last decade we've experienced just one year when the economy gained more than 250,000 jobs a month every month, Mauldin says, and that was 1999: the height of the tech bubble. (As a depressing aside, Mauldin notes that the private sector has shed 300,000 jobs since 1999. A Lost Decade, indeed.)

The upshot of all this? Even the "good" scenario Maudlin susses out of the data is both bad and ugly. That's the one where we get to 5% unemployment by 2020. Still, that model assumes some very optimistic (if long-range) outcomes -- namely, no recessions for the following 10 years and 2 million jobs added each year after 2011. "Of course, we've never done that, but let's be optimistic," Mauldin writes.

And even then, we would still be in for a very painful recovery in the labor market. Unemployment would rise to about 11% early next year and remain above 10% until well into 2013. By the end of 2016 it would still stand at 8%, before finally tapering off to levels Americans are conditioned to accept.

Uh Oh

Now for the worst-case scenario, which assumes a quick double-dip recession in 2011. (Meredith Whitney, who is about as famous as a bank analyst can get, said Monday that we're in for a double-dip recession, by the way.) Throw in the very real possibility of higher taxes and we get unemployment peaking at just below 13% in 2011 and 2012, and then remaining above 10% for the next eight years. (David Rosenberg, chief economist at Canada's Gluskin Sheff and formerly of Merrill Lynch, says unemployment could hit 13%, too.)

The middling scenario, which sort of splits the difference, assumes no double-dip recession, baby boomers retiring on time and job creation following along the same lines as it did in the last recovery. That still puts unemployment above 11% for three years, from mid-2010 to mid-2013. It wouldn't drop below 10% until 2015 and would still stand at 8% in 2020.

"Pessimistic? Mainstream and usually very optimistic Mark Zandi of Moody's Economy.com predicted [last] week that unemployment would rise to 11% by the middle of next year, right in line with this scenario," Mauldin says.

True, these are just predictions, not forgone conclusions. There are bullish folks and data points out there, too. Some executives at ING, the Dutch financial services giant, said Tuesday that unemployment will fall precipitously next year. We also learned Tuesday that job losses on Wall Street have not been as bad as feared.

But should a better-than-Mauldin's-best-case scenario fail to materialize, U.S. workers will have to get used to a shocking New Normal -- a jobs picture more traditionally associated with that of Old Europe. That's not exactly the stuff American Dreams are made of.

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Edited November 18, 2009 by Booyah!

[Heracles 417]

I don't know about you guys but I certianly don't want to be the band or the Captain on the Titanic.

I'm heading for the life rafts.

Edited November 18, 2009 by Booyah!

[natty bumppo 297]

I don't know about you guys but I certianly don't want to be the band or the Captain on the Titanic.

I'm heading for the life rafts.

women and children first ... which are you?

[Heracles 417]

women and children first ... which are you?

I already have a golden ticket out. It's you who needs to be worried. 10 years is a long time to wait for prosperity.

Edited November 18, 2009 by Booyah!

[natty bumppo 297]

women and children first ... which are you?

I already have a golden ticket out. It's you who needs to be worried. 10 years is a long time to wait for prosperity.

Since the Oil is pretty much run out there in Texas, you're sol. The state is certainly not going to deliver innovation of any sort. Actually a lot of f--kers from there are now looking for work up here.

you've gone from the titanic to texas ....

umm in case you've not heard ... the boat didn't even make nyc

[Heracles 417]

umm in case you've not heard ... the boat didn't even make nyc

No Kidding?

So it sunk right? Sounds like a premonition.

Edited November 18, 2009 by Booyah!

[AlHayatZween 2]

Sounds terrible... i hope you are wrong BY.

Can someone explain to me (again) why we can't just bring jobs back to the US? Like call center jobs, and industrial jobs, and manufacturing jobs, textiles, etc... ? Is it all just about big business & finding the cheapest labor elsewhere?

(i'm being serious in asking this question)

[natty bumppo 297]

umm in case you've not heard ... the boat didn't even make nyc

No Kidding?

So it sunk right? Sounds like a premonition.

texas is going to sink in the north atlantic?

[Darnell 8,479]

Is it all just about big business & finding the cheapest labor elsewhere?

Yup. Sorry.

IMO, until there is short-term monetary incentive for keeping it in the USA, it won't be brought BACK into the USA.

Big Business is all about the short term monies...

But hey - everyone likes money, right?

[w¡n9Nµ7 §£@¥€r 123]

Sounds terrible... i hope you are wrong BY.

Can someone explain to me (again) why we can't just bring jobs back to the US? Like call center jobs, and industrial jobs, and manufacturing jobs, textiles, etc... ? Is it all just about big business & finding the cheapest labor elsewhere?

(i'm being serious in asking this question)

I'll answer the question for my employer. We've outsourced most of our IT infrastructure to a domestic vendor, who in turn has offshored 2 out of every 3 positions. Currently, our data center support, desktop/laptop support help desk, network support, AIX/Linux support, Lotus Notes support, server resources monitoring staff are all entirely offshore. By outsourcing these functions to the domestic vendor, my employer has achieved a real (inflation-adjusted) IT budget cut of about 30% over 5 years. If we were to reverse the outsourcing decision and insource it all back in, in addition to the cost of actually moving all our hardware back (which won't be much soon once we're all virtualized) our budget will skyrocket as cost of hiring and retaining employees in the northeast isn't exactly low. What will be the effect? Assuming the business decides to simply swallow the cost (they won't but let's go ahead and pretend) that's a net reduction in operating income for the corporation as a whole. We'll probably have to raise premiums to compensate which will make us uncompetitive with other companies that are even more reliant on offshore staff than we are.

Edited November 18, 2009 by w¡n9Nµ7 §£@¥€r

[Heracles 417]

Sounds terrible... i hope you are wrong BY.

Can someone explain to me (again) why we can't just bring jobs back to the US? Like call center jobs, and industrial jobs, and manufacturing jobs, textiles, etc... ? Is it all just about big business & finding the cheapest labor elsewhere?

(i'm being serious in asking this question)

We can! American Corporations need to change their focus from bottom dollar to being forced to factor what is best for the nation too. It should not be acceptable for a corporation to make billions for their shareholders, all while selling out their employees and the country short.

Furthermore, there needs to be a huge education campaign illustrating the importance of paying a bit more and buying America. Personally, whenever I pick up a product for the first time I always check to see where it is made.

I'll answer the question for my employer. We've outsourced most of our IT infrastructure to a domestic vendor, who in turn has offshored 2 out of every 3 positions. Currently, our data center support, desktop/laptop support help desk, network support, AIX/Linux support, Lotus Notes support, server resources monitoring staff are all entirely offshore.

Are they in India?

[w¡n9Nµ7 §£@¥€r 123]

Some, not most. Lots in Mexico. Lots in eastern europe.

[Heracles 417]

Some, not most. Lots in Mexico. Lots in eastern europe.

They have outsourced IT jobs to Mexico? No seriously..

Edited November 18, 2009 by Booyah!

[w¡n9Nµ7 §£@¥€r 123]

Some, not most. Lots in Mexico. Lots in eastern europe.

They have outsourced IT jobs to Mexico? No seriously?

Desktop/laptop level 1 support and data center project managers are all in Mexico.

Edited November 18, 2009 by w¡n9Nµ7 §£@¥€r

[Heracles 417]

Desktop/laptop level 1 support and data center project managers are all in Mexico.

I don't know why but that is just funny.

I guess NAFTA is working.