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Update: On the Road to 33% Unemployment
The latest official U.S. unemployment number -- 7.6% -- hit the headlines on Friday, February 6. But then there's the "other unemployment rate" of 13.9% that a Wall Street Journal reporter describes in this blog item:
"The Labor Department’s official unemployment rate hit 7.6% in January, and its jump from 4.9% a year earlier marks the largest annual increase in the unemployment rate since 1975. But the government’s broader measure of unemployment hit a more stunning level: 13.9%, up from 13.5% in December. The figure, which largely accounts for people who have stopped looking for work or can’t find full-time jobs, is the highest since the Labor Department started the data series in 1994....
"The 13.9% unemployment rate — known as the 'U-6' for its Bureau of Labor Statistics classification — includes everyone in the official unemployment rate plus 'marginally attached workers,' who are neither working nor looking for work but say they want a job and have looked for work recently, and people who are employed part-time for economic reasons — they want and are available for full-time work but took a part-time schedule because that’s all they could get.
"Because it’s a relatively young data series, the U-6 doesn’t get much attention beyond researchers. But it may deserve more focus over the coming year as the labor market continues its purge. Many employers are still focused on cutting jobs quickly to get through this downturn, pushing job-seekers aside for an extended period. After long searches — we’re in the fifteenth month of this recession — some job hunters are likely to give up and wait out the recession. Without the broader unemployment rate, many of them wouldn’t be counted." [WSJ, 2/6/09]
So this reporter calls it a recession, while we call it a deflationary depression. But the big point to remember is this: As bad as unemployment looks now, the bear market and deflationary depression we have entered are going to make it worse. That's what Bob Prechter forecasts in his latest Elliott Wave Theorist. Wave analysis places the current downturn in what Elliotticians call a Grand Supercycle degree. As that title implies, this is a large-scale wave that compares historically with the wave patterns and bear market of the Great Depression. Here is Bob's analysis of what will happen to unemployment figures as 2009 goes on.
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Excerpted from The Elliott Wave Theorist, January 22, 2009
"As we have long argued, because the current bear market is of one larger degree than that of 1929-1932, the depression it creates will be deeper, which in turn means that the unemployment rate will exceed that of 1933. The peak rate in 1933 was 25 percent. Therefore, unemployment in the U.S. should rise to about 33 percent at the trough of this depression. Fitting this expectation, U.S. job losses in the fourth quarter were greater than at any time since 1945, when World War II ended and defense factories shut down to re-tool. Even after this plunge, however, the 'official' unemployment rate is just 7 percent. But the true unemployment rate, as it would have been measured before the era of government support payments and statistics-fudging such as omitting the number of people who give up looking for work, is currently 17 percent. (This figure is courtesy of John Williams’ Shadow Government Statistics at http://www.shadowstats.com.) So we’re halfway there.
"Here is an excerpt from Conquer the Crash [Prechter's New York Times best-selling book]: 'When the bust occurs, governments won’t have the money required to service truly needy people in unfortunate circumstances.' It’s starting to happen: Agencies administering state governments’ 'unemployment benefits' are swamped and running out of money. In a depression, taking funds from healthy companies to pay people out of work is a scheme that cannot endure. Serious suffering will occur when reality strikes and governments are forced to rescind their promises to the unemployed and stop paying them."
How Close to the Bottom is This Bear Market and Depression? Read the answer in 10 pages of the just-released January 2009 Elliott Wave Theorist. Bob Prechter supports his analysis with 9 illuminating charts – all of which can be at your fingertips. Learn more here.