A Brief Word on Economic Vocabulary...

Robert Reich asks:

Shall We Call it a Depression Now?: Today's employment report, showing that employers cut 533,000 jobs in November, 320,000 in October, and 403,000 in September -- for a total of over 1.2 million over the last three months -- begs the question of whether the meltdown we're experiencing should be called a Depression.

We are falling off a cliff. To put these numbers into some perspective, the November losses alone are the worst in 34 years. A significant percentage of Americans are now jobless or underemployed -- far higher than the official rate of 6.7 percent. Simply in order to keep up with population growth, employment needs to increase by 125,000 jobs per month.

Note also that the length of the typical workweek dropped to 33.5 hours. That's the shortest number of hours since the Department of Labor began keeping records on hours worked, back in 1964. A significant number of people are working part-time who'd rather be working full time. Coupled with those who are too discouraged even to look for work, I'd estimate that the percentage of Americans who need work right now is approaching 11 percent of the workforce. And that percent is likely to raise...

U6--unemployed, plus discouraged workers, plus part time because they cannot find full-time jobs--is now at 12.5%.

As the authority on such matters, I hereby lay down the law: No, we cannot call it a depression yet. We can only call it a depression when the headline unemployment rate--U3--kisses 12%, or when the headline unemployment rate stays above 10% for 36 consecutive months.

I hope that this has been illuminating.

Comments

[Measure for Measure]

If unemployment is above 10% and GDP is 10% off trend, does that count as depression?

I see that the depression following 1893 had a couple of years with unemployment topping 14% (Lebergott) or 12% (Romer).

GDP:
"Estimates of annual real gross national product (which adjust for this period's deflation) are fairly crude, but they generally suggest that real GNP fell about 4% from 1892 to 1893 and another 6% from 1893 to 1894." I don't know whether those particular GDP estimates suffer from the problems that C. Romer pointed out.
http://eh.net/encyclopedia/article/whitten.panic.1893

[JM]

I was going to send a rant out about Reich being an economic drama queen, you did it for me. Thanks!

[crack]

I'll agree if we use U4 instead of U3. Or agree on some other labor force participation rate metric to account for discouraged workers.

[Neal]

Depression will be declared when tenured economists are paid by the state with commodity cheese.

[MaryCh]

Depression will be declared [by some Republicans] when President Obama takes the reins of government.

[This is easy to predict because some are already calling our current economic unpleasantness "The Obama Recession."]

[Maynard]

For the record, the 1.2 million job loss in the last three months is the worst 3-month performance since February 1975; the 6th worst 3-month performance on record. Bigger 3 month employment losses were only recorded in July-Sep, Aug-Oct, Sep-Nov 1945 Nov74-Jan75 and Dec74-Feb75.

In percentage terms, though, the 0.91 percent 3-month drop is only the 41st worst in history, not quite as bad as Apr-June 1980 and May-July 1980.

[TJ]

Just wait.

[Dave]

Do economists have any terms that describe the first or second derivative of U3, instead of the absolute value? Also, are there assumed limits on the maximum negative 2nd derivative, such that projections can be made on the value of the minimum max value of U3 we'll reach at the base of the recession/depression?

I assume there are models that include these kinds of parameters and try to correlate them with different recessions, etc. Just curious if the results are bounded enough that they are considered useful for prediction.

- Dave

[bakho]

The last time unemployment increased like this was the first oil shock of the 1970s.

[donna]

Not just discouraged workers, but unemployed teens and twenty somethings who have never or only briefly been in the workforce, us 50 something moms who are lucky enough to afford to take a break even though we could and would like to be working, but respect that the kids and our husbands need jobs desperately, "full time" jobs of 35 hours or so that don't or just barely even pay the bills, and come without health insurance, etc, etc, etc...

Much of our potential workforce is largely unemployed or desperately employed right now.... it may not be a depression, but it's certainly an extremely bad recession already.

[datanerd]

When do we call it a depression? When the magnitude of the contraction eclipses all of those pesky things we've called recessions since WWII and we need a new word.

Which may be any day now.

[gregt]

Is there a source for unemployment rates calculated off of the Employer/Payroll survey, instead of the Household survey? I'd like to see U-6, but calculated from the Employer/Payroll survey, not the Household survey (of course you'd need portions of the household survey to get the # of discouraged/marginally attached/etc. workers).

[Ken Houghton]

(Somewhat) What crack Said. (Which is one of those sentences...)

I'll agree to your definitions =if= we readjust "headline unemployment" to mean what it did ca. 1932.

Until then, U6 is the best proxy we have of that figure, so there are about 2.5 years to go...

On a quick glance, the E/P ratio hasn't been this low since February of 1993. Basically, any per capita employment gain of the past near-sixteen years is gone.

Heckuva job, that. And that's before any prospective GM bankruptcy.

[nathan]

someone sent me a commentary that said republicans were relatively bad for equities yet tough on inflation (inflation does not increase too much). Democrats, on the other hand, are good for equity values but inflation tends to go up. What is perspective of others?

[dilbert dogbert]

Dang! If the Supremes had selected Gore in 2001 we would just now be making good progress out of the Gore Depression instead of just starting the Bush Depression. Ha Ha.

[Marcus]

How can this be a depression? When people start to a ride donkey instead of a Toyota prius to work, then we can talk.

Until then, I have 3 cars sitting in my driveway, and most of my neighbors do, too.

What world do we live in when we think we have it bad?