10% Unemployment Remembered

Unemployment sits at 3.5%, according to the BLS. It is a multi-decade low only matched by the rate at the start of 2020. The COVID-19 pandemic shoved that number to 14.7%. However, the economy began to recover quickly. This was not the case in October 2009 when the jobless rate reached 10% and stayed near that. It was the nadir of The Great Recession which remains the worst downturn since The Great Depression. The U.S. is not likely to face that jobless rate again, particularly during the current downturn.

The subprime mortgage crisis of 2008/2009 was set off by mortgage rates extended to millions of people who could not afford them. This became worse when these mortgage rates reset higher. Defaults and foreclosures soared. Wall St., which had manufactured debt instruments built by these mortgages, nearly imploded. The debt crisis ran around the world and almost collapsed the economics of several European countries.

Fortunately, almost no one believes the current downturn will trigger double digit unemployment. Even with inflation rates high, the national economy remains relatively healthy. Inflation will drive up the cost of living, but those who suffer from these prices may not lose their jobs. However, their purchasing power will drop, which in turn will undermine the consumer driven part of the nation’s financial engine.

The people who will be harmed by the low jobless rate and the high interest rate economy will be those who have extremely low incomes. They already live on the edge of the ability to cover normal monthly costs. Housing costs, both for owners and renters, have hit all time highs. For low income Americans, this situation could not be worse, as long as they have jobs.

It is too late to escape another downturn. If the Fed could have turned the tide of inflation, it would have needed to start at the middle of last year. Price increases caused by problems like tight supply chains overwhelmed the Fed’s power, particularly because it did not start to tighten until it was too late.

10% unemployment is not in the near term future. High prices that erode purchasing power is.

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