Unemployment Ominous Jobless Recovery

In my prior post I reported on the speck of light we saw in the Septembers unemployment report. We said the positive sign was the fact that new unemployment claims as a percentage of the labor force had declined. This was a positive sign relative to the recessions we had in the 70's and 80's.

Now for the really bad news. As a result of are outsourced and imported economy, beginning in 1991 American began experiencing what economist call "jobless" recovers. In other words unlike the 70's and 80's were we saw big spikes in job hiring at the end of recessions, we no longer see large job creation improvements.

Why? Because unlike the 70's and 80's we now purchase much (maybe most) of what we buy from foreign lands. In fact the economic training I and every economist gets totally ignores the negative impacts of importing more than you export. Instead economist will dwell all day on elementary examples of the benefits of "Comparative Advantage" which like their theory of "The Rational Man" has value but are far to simplistic to exist in a complex world of humans and changing economic tides. And so it is you will be hearing more of this cherry coated term, "jobless" recovery in the future.

Yes, economist called attention to this in the 1990-91 recession when unemployment continued to rise after the "official" recession end. The chart above shows the monthly U.S. jobless rate back to January 1990 (BLS data here), highlighting (in grey) the 1990-1991 and 2001 recessions, and the two periods following the last two recessions that were referred to as the periods of "jobless recovery." Following the 1990-1991 recession, the unemployment continued to increase for 15 months until it peaked in June 1992 at 7.8%, and following the 2001 recession, the jobless rate increased for 19 months until June 2003 when it peaked at 6.3%.

Assuming that the most recent recession ended in June 2009 (as many economist believe) and we have another jobless recovery of at least 16 months, we can expect the unemployment to realistically continue to increase at least through the end of 2010 before it reaches its post-recession peak in the current "jobless recovery."

How can this impact the stock market? Well, the most recent example was the 2001-2003 market which climbed for months after the 9/11 final sell-off which proved to be the end of a much shorter recession. But by March of 2002, after a period of inventory restocking similar to our current experience the market fell for 9 straight months back to its 2001 lows before rebounding again in 2003 when unemployment finally began declining.

Let's just hope history doesn't repeat itself.