Why this recession will last longer than expected

The Bureau of Labor Statistics' July 2 Economic Situation Summary surprised a lot of people: investors, pundits and politicos alike. No green sprouts here.

The facts are clear:

  • Total June job losses reversed a recent trend, posting a staggering loss of 467,000 jobs.
  • Equally troubling is the decline in weekly hours of work.

This really should not be a surprise. The larger story had already been reported in an excellent article on June 12. Reporting in USAToday, Dennis Cauchon turned in a well researched story that points to the real problem. Unemployment is not the major story.

IT'S THE UNDEREMPLOYMENT, STUPID.

– The hours worked per week in May (then June) represent record lows (data from 1964 forward).
– Weekly earnings for private sector jobs are down since 1Q09.
– Cauchon reports that businesses cut wages by 6.2% in the first quarter. He quotes Laura Sejen of Watson Wyatt as, "this recession is unlike any since the Depression."

No doubt, this recession will be protracted. Before there can a real turnaround, the economy will have to grow enough to reverse both the underemployment, and then the unemployment.

MY PREDICTIONS:

1. High unemployment: 10+% for the next 24 months.

2. Stock market: stagnant with weak earnings for 24 months

3. Commodity prices: soft with the exception of energy.

4. Long term interest rates: rising based on US deficits.

One thought on “Why this recession will last longer than expected

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