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IPFS News Link • Economy - Economics USA

Misguided Economists Say Unemployment Rate Has Peaked

I have no idea how economists miss what's right before their noses but cash-strapped cities, states and municipalities are hiking taxes and laying off workers. Tax hikes will devastate small businesses. They will also harm everyone for the benefit of union workers. The effects of such misguided policies have not yet been felt. In case you missed it, note that Governor Christie Declares "New Jersey on Edge of Bankruptcy". Pullbacks in state spending have only just begun. Watch what happens after the next election. It is very difficult for candidates to preach fiscal austerity now. It will be much easier to do so, the first year following a four-year gubernatorial election. Also remember, the Fed is about ready (or so they claim), to halt agency and treasury purchases. The effects of that on the mortgage and housing market are also not factored in. No V-Shaped Recovery Economists still expect some sort of V-shaped recovery even though there is no driver for jobs. Small businesses have no reason to hire, and indeed are not hiring. Even if by some miracle we do see 100,000+ jobs a month between now and May (discounting census hiring which may temporarily distort BLS numbers further), expect to see unemployment head towards 11% by mid-summer on simple reversion to the mean unwinding of preposterous BLS seasonal adjustments. Participation Rate Pressures Down the road, expect the participation rate to rise (those wanting jobs to start looking again). Here is the appropriate snip from Jobs Contract Yet Again; Unemployment Rate Drops To 9.7% Persons Not in the Labor Force About 2.5 million persons were marginally attached to the labor force in January, an increase of 409,000 from a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Headwinds for a rapid drop in the unemployment rate are enormous. Realistically, it simply is not going to happen.