First of all, I want to say I’m very glad that unemployment benefits are being (temporarily) extended yet again. I was afraid that with that the recession being “over,” there would be political pressure (or laziness) not to, and this bill helps hundreds of thousands of people who were about to see their income dry up.
It is crazy to think that many people are about to run out on a minimum 79 week benefit (some states are even longer, up to 90 weeks) but that is the state of the job market these days. In fact, the number of long term unemployed has smashed all post-WWII records, a figure that is going to get much worse before it gets better. Christmas is setting up to be an “unforeseeable” catastrophe, with employment and sales projected to be 5-25% less than last year. I personally think that it will be the middle of that range, as credit is contracting at a record pace, defaults are at a record, and trade is plummeting. The latter can be seen by looking at railroad traffic to get an idea of domestic orders, and port activity for international trade. Please read this fascinating article about a “ghost fleet” that represents the face of global trade contraction. It should be noted that September to October is the prime time for ordering inventory for Christmas, so the failure to see much of a rebound at all thus far is indicative of stores expecting very low demand for Christmas goods.
If things do play out like these indicators suggest, we are going to see extensive bankruptcies of retailers and all of the unemployment that brings. It’s unclear what effects that would have on the rest of the economy: I’ve read that a lot of businesses are waiting to make major capital investments based on the strength of the Christmas season, so if they decide not to then there will be another contraction in manufacturing. On the other hand, that industry has already lost so much they probably don’t have much further to go. In any case, if there is a good Christmas season we’ll probably see unemployment rise a bit above 10% with U6 around 18%, but if there is a bad Christmas unemployment will surely rise closer to 12% and U6 to 20%. Either way, there will be protracted lengths of unemployment above 8% and a good chance that a secondary (and perhaps larger) recession will start within the next year or two, driving those numbers up much further.
There are already millions of people that have been out of work for over a year, and unless things drastically improve, that number will skyrocket in the next six months. That’s not even counting the number of people that are in non-sustainable job situations where they have worked a series of temporary jobs, had their hours cut back, or are “contractors,” a figure that is surely in the tens of millions. The situation is putting a huge strain on state resources and forcing them to raise unemployment insurance on businesses (leading to more cutbacks) and take out loans from the Federal Government that, if not repaid in a couple years, will accrue interest that comes out of the general state budget.
It is time for the government to accept that this isn’t a run of the mill recession that is rebound quickly with financial system stimulus. Indeed, we’ve thrown trillions at it and nothing is happening because consumers are tapped out. By this time next year, we’re going to be talking about a New New Deal, the only question is what form it takes.