On August 23, 2009, in our call that the recession was over, we said the following:
“I doubt that the general public will agree that the recession is over since jobs will not be as plentiful as the past.”
From the low in 2009 to 2014, many questioned the rising stock market and economy because job growth was not as strong as hoped. However, it should have been understood that to achieve such accelerated job growth comes at a very expensive price.
On July 2013, we said the following of the unemployment rate:
“It is important to understand that the 10% and 3.8% unemployment rates are undesirable scenarios. The 10% unemployment rate is in the depths of a “recession” and the 3.8% unemployment rate at the height of a overextended economic boom.”
On August 24, 2018, we said the following of the unemployment rate:
“Presently, we anticipate the unemployment rate rising to the 6.30% level as a natural reaction to the current low levels. While the unemployment rate can go lower, there is a tremendous tradeoff to achieving lower levels. It is quite possible we have seen the best of times with a declining unemployment. Anything below the current levels will come at a tremendous cost in the next recession.”
The current environment bears out the concerns that we’ve had about the unemployment rate decreasing below 3.80%. Once we get beyond a certain tipping point the reaction is swift and unnecessarily painful.
The Outlook
According to the Washington Post dated March 23, 2020, the projected unemployment rate is likely to range from 9% to 30% based on the fallout from the coronavirus (COVID-19). Our August 2018 projection of 6.30% remains, as it is the first stopping point to any higher level beyond Goldman Sach’s 9% or St. Louis Federal Reserve President James Bullard’s 30%.
These estimates, in our view, are knee jerk reactions in a vacuum. As we were concerned about going below 3.80% in the unemployment rate back in 2013, we’re going to wait until we reach 6.30% before we can offer up a measure perspective on the situation.
Please keep in mind that none of what has occurred, at least from a data standpoint, is unusual or unexpected. Of course we couldn’t predict that a pandemic was coming. Yet, the data, from a historical standpoint, suggested that the low range was at an extreme and was bound to react to the upside.
