Friday, November 6, 2009


The Lehmann Letter ©

Today the Bureau of Labor Statistics announced that the unemployment rate rose to 10.2% and that the economy lost 190,000 jobs in October:

But there was some good news: Manufacturing overtime, which had been 2.8 hours per week in the second quarter and 3.0 hours/week in the third quarter, rose to 3.2 hours/week in October. That’s a sign of growing strength in a leading sector and, although manufacturing continues to lose jobs, provides a ray of hope.

Yet 10.2% is a big number and it may grow larger. We haven’t had 10+% unemployment since the 1981-82 recession. Some may recall that we popped quickly out of that trough and may hope for a repeat performance this time. It may not happen.

Recall that the Fed’s tight-money policy instigated the 1981-82 recession. Spiraling interest rates dragged the economy down. As soon as the Fed let interest rates fall, the economy bounded forward and began soaking up the unemployed. By 1984 the economy was hot and job-growth was strong.

The real-estate collapse, not high interest rates, instigated the 2008-09 recession. Interest rates have been rock-bottom for some time and the economy is only beginning to stir. We can’t rely on low interest rates to haul us out of the ditch. Today’s circumstances are very different from the 1983-84 recovery.

We can’t count on a swift rebound to absorb the unemployed.

© 2009 Michael B. Lehmann

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