Today's employment report showed an additional 651,000 jobs lost in January and an unemployment rate of 8.1%. With unemployment now above 8%, let's take a look back at the historical data since WWII:
Seasonally Adjusted Unemployment Rate (%)
As the chart just catches on the left, the current unemployment rate of 8.1% is still below the peak level of 9.0% in 1975 and the 10.8% level in 1982/3. Looking over the monthly data from the last four unemployment rate spikes show that we are just getting started with these high unemployment levels.
1974 - 1977: unemployment jumped to 7.2% at the end of '74 before peaking at 9.0% in May '75. Unemployment remained above 8.0% for all of 1975 and above 7.0% for 31 consecutive months.
1980-1985: the unemployment rate broke 8.0% in November '81, 9.0% in March '82, 10.0% in September '82 and peaked at 10.8% in December '82. The rate remained above 10.0% for 10 consecutive months and above 8.0% for 27 straight months.
1991-1993: unemployment rose to 7.0% in October '91, topped out at 7.8% in June '92, then remained at or above 7.0% for the next 12 months. Overall the rate spent 21 straight months above 7.0%
2002-2003: unemployment peaked at only 6.3% in June '03 and was above 6.0% for seven consecutive months.
During the 70's, 80's and 90's the labor force experienced periods of prolonged high unemployment rates. During the short recession on 2002-2003 unemployment became elevated but did not spike to the above 7.5% levels likely needed to wash out the excesses of the tech boom. How did the economy avoid the large layoffs? The Federal Reserve Bank responded to lower their fed funds target rate to 1.0%.
1974 - 1977: unemployment jumped to 7.2% at the end of '74 before peaking at 9.0% in May '75. Unemployment remained above 8.0% for all of 1975 and above 7.0% for 31 consecutive months.
1980-1985: the unemployment rate broke 8.0% in November '81, 9.0% in March '82, 10.0% in September '82 and peaked at 10.8% in December '82. The rate remained above 10.0% for 10 consecutive months and above 8.0% for 27 straight months.
1991-1993: unemployment rose to 7.0% in October '91, topped out at 7.8% in June '92, then remained at or above 7.0% for the next 12 months. Overall the rate spent 21 straight months above 7.0%
2002-2003: unemployment peaked at only 6.3% in June '03 and was above 6.0% for seven consecutive months.
During the 70's, 80's and 90's the labor force experienced periods of prolonged high unemployment rates. During the short recession on 2002-2003 unemployment became elevated but did not spike to the above 7.5% levels likely needed to wash out the excesses of the tech boom. How did the economy avoid the large layoffs? The Federal Reserve Bank responded to lower their fed funds target rate to 1.0%.
The Fed dropped rates to 1.0% and kept them there for 12 straight months. Additionally, they kept the rate at or below 2.0% for more than three straight years! This decision by the Fed created the environment necessary to incubate the excesses of 2004-2007 where investors worldwide searched for higher return while ignoring risk. Had the Fed not artificially set interest rates so low, many asset prices would not have gone to such extremes. Unfortunately, as the right side of the chart shows, the Fed has again dropped rates down, this time to 0% to spur economic growth. Had the Fed not dropped rates to the 1.0% level for twelve months in 2002/2003 the economy may have cooled off sufficiently and we may not have the disaster we now find ourselves in.
Looking back at the historical unemployment data shows that the 8.1% level reached in February may only be a milestone towards 10.0%. During this downturn we should expect to see unemployment remain at high levels for many months or longer, similar to the experiences of the 1970's and 1980's.
Sources:
Unemployment date data via BLS
Fed Funds historical data via Money Cafe
Looking back at the historical unemployment data shows that the 8.1% level reached in February may only be a milestone towards 10.0%. During this downturn we should expect to see unemployment remain at high levels for many months or longer, similar to the experiences of the 1970's and 1980's.
Sources:
Unemployment date data via BLS
Fed Funds historical data via Money Cafe
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