US unemployment

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Economists are adrift. It is common to see references to when figures were last this bad, the dates marching swiftly backward through the 20th century with every data release. But economic models based on the post-war experience fail to capture the nature of this recession. Not since the 1930s has US unemployment been 9 per cent and heading higher while consumer prices were simultaneously falling.

Indeed, while some leading indicators based on sentiment have risen – the effect, in part of the rally in stock markets – initial jobless claims give little cause for optimism. The decrease in new claims announced on Thursday, to 631,000 from 643,000 the week before, was concentrated in carmaking states that had blipped upwards when factories were temporarily shuttered. The underlying moderation is extremely faint, leaving unemployment on course to breach 10 per cent this year.

Such trends are not consistent with an economy on its way out of recession. Sure, unemployment is slow to respond in a turnround, but a recovery in output should at least be accompanied by a slowdown in the pace of job losses. For the rate to top 11 per cent would probably require a shock such as the disorderly bankruptcy of General Motors and its supply chain. But the real risk is that a weak labour market weighs on consumption, muting any rebound.

In addition, aggregate private wages and salaries have now fallen for six months in a row, an unknown occurrence in the 50 years the data have been measured. And with unemployment come more foreclosures, lower property prices and troubles for the banks, hindering lending. Not to mention the long process of consumer deleveraging.

Investors who have piled back into risky assets such as equities on the assumption of a swift return to growth should ponder America’s job losses, lest they also find themselves all at sea.

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