Total Unemployment & Average Duration

Although the total number of unemployed Americans peaked at just over 16 million in January 2010, there are still over 14M American's currently out of work:

Although the total number of unemployed has improved from it's peak, the average unemployment duration of those currently out of work is 39 weeks and trending upwards, suggesting that the longer someone is unemployed, the further they are from finding a job. To put that into context, the average unemployment duration between 2001 and 2009 was only ~16 weeks:

What will happen when unemployment insurance extensions expire at the end of the year?

Data Source: BLS.gov

The Broken Labor Market

One of the theories behind the destruction of the Middle Class is that as productivity skyrocketed in the 80's and 90's, while wages failed to keep pace. With productivity creating supply and wages driving demand, this created an imbalance in our economy. In order to fill in the shortage of demand (i.e. wages), the Federal Reserve dropped interest rates to loosen the credit market and banks started to offer attractive home equity lines of credit. So according to this theory, the crisis that we are in occurred because the American consumer hit his/her credit limit, causing demand to plummet and grinding our economy to a halt.

But why do I mention this? According to the Labor Department, wages have grown by 1.8% over the past year, the lowest increase ever recorded. Looking at 2009, wages increased by only 0.3% in the first quarter and 0.4% in the second. Comparing those stats to the productivity gains seen over the same quarters shows that we are doing nothing to "fix" the fundamentals of our economy, i.e. mismatched supply and demand. According to Bloomberg:

The productivity of U.S. workers grew in the second quarter at the fastest pace in almost six years as employers slashed payrolls to bolster profits. Productivity, a measure of how much an employee produces for each hour worked, rose at an annual 6.4 percent pace, more than forecast, after a 0.3 percent gain the prior three months, Labor Department data showed today in Washington.

What does this mismatch between productivity and wages mean to business? Bloomberg goes on to say:

The productivity report showed labor costs decreased at a 5.8 percent pace, the second consecutive fall and the biggest since 2001.

So if you're curious as to how the stock market can be hitting new highs even though none of the fundamentals of the economy have changed, in my opinion, you have to look no further than this report. Companies are increasing their profitability by shedding labor costs, not by increased sales/business.

So when you hear the term "jobless recovery," realize that there is no such thing. Until wages have risen enough, or prices deflate enough, there will still be a mismatch between supply and demand and our economy will continue to sputter along. I just hope we don't end up like Japan and their "lost decade"

More Economic Updates

With the Dow crossing the 9000 point mark for the first time since January and the S&P hitting its highest level since November today, I thought I'd share a snapshot (good and bad) of our economy:

Housing Market -

• Home resales increased 3.6% in June after climbing by 1.3% in May, a monthly rise more than double what economists were expecting (in all, sales are down by 0.2% compared with a year ago).
  
• The number of potential buyers looking at homes is 12% higher compared to a year ago.
• The median price of a home rose for the second straight month in June, climbing by 4.06% to $181,800 from May (compared with a year ago, home prices are off by 15.8%).
• Inventory fell by 0.7% in June with 3.82m homes for sale, representing a 9.4-months supply, down from a revised 9.8 in May.

Job Market -

• new jobless claims climbed by 30,000 to 554,000 during the week ending July 18 (in line with economists’ expectations).
• The four-week average of new claims declined last week, falling by 19,000 to 566,000. Earlier this month, benefits claims had dropped to their lowest level since January.
• The four-week average of continuing claims is down by 132,500 to 6.54m, which is 106% higher (or roughtly double) than a year ago.
• The unemployment rate is at a 26-year high of 9.5%

State Governments -

While California has been making most of the headlines with it's budget crisis, many other states have quietly been battling theirs. The financial times put together this great visual to illustrate the problem:

According to data released on Monday by the National Conference of State Legislatures, the total deficit of all 50 states totaled $143bn for fiscal year 2010.

Our economy has come along way in the last 18 months, but we're not out of the woods yet.