Monday, August 10, 2009

10% Unemployment, Maybe Not?

Nate Silver thinks that unemployment won't hit 10%. I would agree with his conclusions based on his numbers. As a previous post stated the improvement in unemployment was very much helped by the number of people actively seeking work declined. I think this is the important passage in Silver's prediction:
"In order for unemployment to hit 10 percent, a net of roughly 1 million more people would need to become unemployed, assuming no change in the size of the labor force (which is a big assumption and one we’ll examine in a moment). This almost cetainly won't happen. Last month, 247,000 jobs were lost according to the payroll survey, and 155,000 more people became unemployed according to the household survey. (What’s the difference between these two numbers? We’ll discuss that too in a bit.) Given that the numbers are improving, it’s hard to see how you can squeeze another million or so job losses of 150-300K per month -– you’d need the employment picture to completely flatline for another 4-5 months, or for what now seems to be a fairly robust trend to actually reverse itself.

Note, however, what I stipulated earlier: assuming no change in the size of the labor force. Ordinarily, about 125,000 additional people each month enter the economy. So it’s not enough merely to break even on the job creation numbers; you have to be slightly into positive territory to avoid seeing the unemployment rate go up as a result of these new job-seekers."

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