MACRO: Structural Unemployment

This insight was published on August 9, 2010. RISK MANAGER SUBSCRIBERS have access to SELECT MACRO content in real-time.


Conclusion: Even though Hedgeye is hiring, unemployment in the United States is becoming an increasingly structural issue as evidenced by the percent of unemployed that have been out of work for 6-months or more.
We are going to keep this note short and tight even by Hedgeye standards.  I asked my teammates Darius Dale and Matt Hedrick to look at longer term unemployment as a percentage of total employment going back as long as the data would allow us.  The output of their work is the chart below.
The chart highlights the percentage of total unemployed that have been unemployed for more than 6-months.  As can be seen in the chart below, more than 45% of unemployed have been unemployed for more than 6-months.  This is the highest level we’ve seen for long term unemployed going back to 1948.
The conclusion is simply that the unemployment in this nation is becoming structural.  While the credit boom created employment in the housing and construction sector, that entire industry has gone away and been replaced by . . . well, not much at this point.
As the non-partisan Congressional Budget Office stated in a recent paper:
“As a result, gains in employment after this recession will probably rely more than usual on the creation of new jobs, possibly in new firms that are located in different places and require workers with different skills than those needed in the jobs that have disappeared. For workers who have lost jobs to which they cannot return, acquiring new skills can take time. (In contrast, it is easier for workers who have been laid off temporarily to return to their jobs because the employers already know the workers and the workers already have the right skills and are familiar with the work.) For workers who need to move to different regions to find new jobs, the sharp declines in home prices during this recession, combined with the high loan-to-value ratios on many mortgages before the downturn, will hinder relocation. With a significant share of homeowners now owing more on their mortgages than their homes are worth, many people may not be able to sell their house for enough money to enable them to buy one in a new area.”
Further, this trend of longer unemployment comes with major issues because the longer unemployment lasts, the more likely it becomes that complacency sets in and the unemployed person becomes less willing to pursue employment in a traditional sense.
Maybe it’s just me, but I’m not sure quantitative easing is going to get us out of this one.

MACRO: Structural Unemployment - chart1

Daryl G. Jones
Managing Director