A Jobless Recovery?
September 8, 2009
The July unemployment numbers were not very encouraging.
The Federal unemployment rate jumped to 9.7%. To put this number in some context the unemployment rate has only exceeded 8% one other time since 1990.
The State of Wisconsin’s rate has jumped to 8.7% is has been climbing steadily. Since 1990, Wisconsin has never experienced unemployment rates above 7% until these past few months. Cities like Racine and Janesville have unemployment rates nearing 20%.
Economists will say that unemployment is a lagging indicator of economic health. The rate generally goes up after the economy is already slowing down as employers are reluctant to cut staffing until the losses start to mount and it takes other factors in the economy turning around before employers feel confident enough to add people to the payroll.
I believe a few things may be different this time.
For one thing we are now only a part of a larger global economy. In past recoveries we did not have to compete with emerging powers like China and India. The rise of these countries will continue to hurt our manufacturing base as conditions for doing business in those countries is much more favorable than our own.
I also believe that taxes are set to increase as plans like nationalized health insurance become law and programs like cap and trade are implemented. This will only drive up the cost of doing business and make it harder to add employees.
The trouble is that if unemployment fails to improve quickly that consumer spending will continue to be down and that will make it hard for a recovery to sustain itself.
If you own a business it might be best to plan on your sales continuing to remain flat for some time.
