Rosenberg: U.S. unemployment rate headed for 12.0-13.0%

David Rosenberg thinks the unemployment rate is headed much higher than anyone anticipates.  If you recall, back in January when the stimulus package was crafted, the Obama Administration felt that passing the bill would mean an unemployment rate which would top out at 8.0%. As the situation deteriorated, the President recognized that 10.0% was more likely – a number we just got last week. But Rosenberg is the only one (except Meredith Whitney) who is talking about 12-13%.

As an aside, it was interesting to hear Whitney at about 3:15 into the third video in the link above from July. Right before she gives us the dreaded 13% number, she admits to lowballing her house price decline estimates in order not to be dismissed as wildly out of step with consensus. That pressure is something I discussed here.

Here’s what Rosenberg says:

There are serious structural issues undermining the U.S. labour market as companies continue to adjust their order books, production schedules and staffing requirements to a semi-permanently impaired credit backdrop. The bottom line is that the level of credit per unit of GDP is going to be much, much lower in the future than has been the case in the last two decades. While we may be getting close to a bottom in terms of employment, the jobless rate is very likely going to be climbing much further in the future due to the secular dynamics within the labour market.

But in a nutshell, to be calling for a 12.0-13.0% unemployment rate is meaningless except that it is very likely going to be a headline grabber. The most inclusive definition of them all, the U6 measure of the unemployment rate, which includes all forms of unemployed and underemployed, is already at 17.5%. The posted U3 jobless rate that everyone focuses on is at 10.2% (though if it weren’t for the drop in the labour force participation rate, to 65.1% from 66.0% a year ago, the unemployment rate would be testing the post-WWII high of 10.8% right now). The gap between the U6 and the official U3 rate is at a record 7.3 percentage points. Normally this spread is between 3-4 percentage points and ultimately we will see a reversion to the mean, to some unhappy middle where the U6 may be closer to 15.0-16.0% and the posted jobless rate closer to 12%. This will undoubtedly be a major political issue, especially in the context of a mid-term elections and the GOP starting to gain some electoral ground.

As I indicated when the employment numbers came out last week, we should expect the labor force participation rate to increase during recovery as discouraged workers come back into the labor force. The fact that the opposite is still happening means the unemployment rate will move higher (although 13% is sure to induce a double dip and I am not seeing this as a base case at this time).

Rosenberg’s political calculus also seems accurate.  In my post, “the politics of economics” I said that President Obama needs to take more blunt measures to deal with the unemployment situation head on.  Indirect measures are not going to be effective enough to prevent Democratic losses in 2010. Moreover, a recent poll released by Gallup today says that Republicans have now edged ahead of Democrats for 2010. If we see 12 or 13% unemployment, it will be much, much worse than that for the Democrats – and if Obama thinks getting his agenda through now is difficult, wait until 2011 when he may have to contend with more Republicans in Congress.

More of Rosenberg at the link below.


Breakfast with Dave, 11 Nov 2009 (pdf) – David Rosenberg, Gluskin Sheff (free requires registration)

  1. LavrentiBeria says

    An interesting bit of reasoning this business of the “gap”. I’ve long felt 12% unemployment was likely – and a Dow below previous lows for that matter – but here we’re given the mechanism. If there are, in fact, Republican political gains that emerge from the denial of the Obama/Summers/Geithner/Bernanke clique bought by financial interests at the expense of average Americans, you can count on the economic situation worstening still with no meaningful help for the unemployed at all. Its then that the people will have their most obvious opportunity to deal with the filth that govern us, top to bottom. There’s the silver lining in this cloud.

  2. kynikos says

    Who isn’t pessimistic about the labor market? Everyone is pessimistic about the labor market.

  3. gruntled says

    It seems to me that at some point someone will decree that the number will not exceed, let’s say, 10.5%, and we’ll never see anything higher. If the reality becomes too dark and gloomy, they can always project a different reality onto the masses.

  4. Anonymous says

    I hope the unemployment rate goes to something like 760 THOUSAND percent, and all the people that used to play the market from overseas decide to find a new hobby, so Americans can resume their lives, getting jobs at new US companies that sell American products for Americans to buy, and kind of permanently put the kaibosh on the whole globalization business. Trillions of dollars have flowed overseas, it’s time for some countries(and people) to get weaned off the American promissory cash cow, and do for themselves instead.

    Unemployed? Who cares? Gives you plenty of time to reason out new ways to support yourself that don’t involve essentially being an indentured servant for the rest of your life. The same hands that run the machine at work can make dinner, plant vegetables, sharpen the pencil, and do a thousand other things that’ll probably end up helping you do for yourself and your family at the same level and standard of living you ‘enjoyed’ when you had a paycheck for others to harvest.

    Seriously. Let the job market permanently go to Hades. Eventually, they’ll have to lay off the people with the college degrees, too(college grads have an unemployment rate around 5%, ‘recession’ is relative, here), and then we’ll all be in the soup line. Maybe the grads can read to us from Chaucer, pass the time more quickly while waiting for our daily government ration of tomato soup….LOL

  5. Anonymous says

    Expect 18%-20% nominal and 26%-28% comprehensive unemployment by the end of 2010. Next year approximately $2 trillion in commercial loans: hotels, shipping, tourism, airlines, as well as thousands of high end small businesses will default as consumers pull back on spending and deflation takes root. We’ve already seen over 120 bank failures. FGHA begging for more money, FDIC going broke, and real foreign investment drying up.

    We are in deep doodoo and the Administration will not tell us how deep to avoid panic in the streets. What the Administration must do is force the Federal Reserve to call a two year moratorium on debt service payments. The Congress should then allocate the $380 billion to job creation… CCC type programs. Over two years that amounts to $760 billion for a total of $1.5 trillion for economic development and employment generation.

  6. Julie says

    We are so screwed as a country if we get GOP majorities in the house or senate in 2011. The GOP has no sense of accountability to the American people and no conscience when it comes to the pain and suffering their party inflicted on us.

  7. Anonymous says

    Going through the numbers, there are quite a few interesting observations to be made:
    · Unemployment among full time workers (i.e those desirous of working full time or are on lay off from full time job) has crossed 11% mark to reach 11.1%

    · 156,000 additional people remained unemployed for more than 26 weeks, thereby making them ineligible for unemployment insurance

    · In last one year, an additional 3.2 million people have stopped receiving unemployment allowance

    · Of the total unemployed, currently 35.6% of them are not getting any allowance

    · The average duration of unemployment has gone upto 26.9%, the highest ever recorded

    · Unemployment among part-time workers dipped after a long time, implying employers are sceptical about recovery

    What this means is that recovery (or some acceptable form of it) will only be possible if the stimulus package continues. Withdrawal of stimulus will affect likely nascent recovery.

    For more of my views, please click on

  8. Monty Pelerin says

    I think Rosenberg will be low in his estimates. He uses the current underemployed and the record-low work week statistic as the basis of his projection. Nothing wrong here. But, in addition to these effects, we have others that will likely come into play. First, the extension of unemployment benefits will produce upward pressure on the unemployment rate as certain people will use the extended benefits to either defer their search or to search harder and longer. Second, I don’t believe the impact of the tax and regulatory framework has been fully comprehended by business. Is healthcare going to pass? In what form? What will this cost per employee? When are taxes going up? Who will bear the brunt of them? These uncertainties have certainly frozen new hiring and investment, but when they become certainties, in whatever form, they will likely have add-on effects. Third, this economy is still going down. It has not yet bottomed.
    Monty Pelerin

  9. Anonymous says

    In a global economy, people purchase products that offer the best ‘value proposition’. That usually means ‘made elsewhere’. As such, our ‘standard of living’ will continue to erode, and our ‘relative standard of living’ will go down much faster. China seems to recognize these global realities and is making substantial investments in Africa and South America. Eventually, they want a better lifer for their citizens, who are willing to work for it, rather than simply being ‘entitled’ to it.

    Let’s face it. We’ve had a pretty ‘good ride’. But anyone who believes that we have a God given right to a better standard of living is seriously mistaken.

    Most average Americans will need to get used to smaller homes, fuel efficient vehicles, and fewer services. Hopefully, these same people will have the strength and courage to adapt, for the good of our posterity.

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