double digit unemployment

The job losses for 2008 were the worst since 1945. So says the Wall Street Journal. It is good to note that there were half as many people then, and that the nation was switching from a war time economy, where everyone -young and old, firm and infirm- were put to work producing much needed ammunition and machinery. It is also good to note that there was huge demand after world war 2 to rebuild all the devastation. There wasn't a glut of housing and a mountain of personal debt.

Furthermore, since the US won the war it was in a dominant position to make sure that a huge chunk of that rebuilding effort went to US companies. The country also took over many lucrative foreign businesses, both in Germany and to a lesser extent in Japan. Stimulus plans to rebuild Europe created ample opportunity. An era of unheard of prosperity was waiting in the wings.

Today is much different, the job losses that started in the last few months of 2008 are by no means a thing of the past. Many more layoffs were announced in January of 2009 and there are many more to come. 

Not only is the population much larger now, it is also older and aging fast. Despite glorious ads of retirement spent in luxury and travel, older people spend far less than young people, and if one excludes health care, the difference is even larger. The situation in Europe, where many of our customers are is even worse, and many countries have an even older population.

There are two further complications. Our aging population has overspent like there was no tomorrow. They are deeply in debt and without savings. Many don't have pensions or other guaranteed income. They also don't have good health care coverage. They have no more money to spend and most can't even save up enough to keep living the way they are now.

A lot are deeply in debt and in danger of losing their homes. Most of the negative amortization mortgages have not reset yet. The majority of people with such mortgages could never afford the reset, let alone if they lose their jobs. Furthermore, they are deeply underwater as is and that makes it nearly impossible to refinance. Their 401k's, IRA's, and other retirement vehicles have lost tremendous value.

Advertised unemployment hit 7.2%. The number is overly optimistic. In the US we count people applying for unemployment, a very short-lived remedy that is often bypassed by a significant number of out-of-work persons. It makes our numbers look good, and better than European numbers. But 7.2% in the US is much, much worse than 7.2% in Germany, where all jobs come with a decent wage, health and retirement benefits and the like. Germany also has a safety net that is almost completely absent in the US. The same applies to most other European nations.

Real unemployment, or actual number of people out work, a number that includes workers who have dropped out of the labor force, or work part-time at odd jobs because they can't find full-time jobs, hit 13.5% in December. That is solidly in the double-digit range. I predicted previously that real unemployment could hit 15-20% and I stand by that prediction.

As I mentioned before, many of the forces that will make matters worse have yet to show their faces. Housing losses are far from hitting bottom. Retailers still think of spring and summer fashions. Fashion is one of the concepts that may disappear for a while. I can't see cash strapped consumers ditching good items simply because they went out of style. And while it will be painful, the latter is actually a good thing. Good for our habitat, and good for our long term survival.