The Organization for Economic Co-Operation and Development (OECD) released updated economic projections on several countries late last week, and while some are calling the projections grim, they look extremely optimistic to me. The report projects different economic variables through 2010, but the one I want to specifically focus on is employment. In their report they see the U.S. capping out with an unemployment rate of 7.6 percent in the first quarter of 2010. Considering that we are already at 6.5 percent, and news of mass layoffs keep coming with no end in sight, it is hard to believe that we won’t easily surpass 7.6 percent next year.
The big headline in the papers this morning is the 50,000+ people that are getting laid off by Citigroup, on top of previous layoffs the company has already announced this year. Things certainly are not getting better in the financial industry, and really the outlook is not the great anywhere else, either. If the automakers don’t get a big bailout we will soon see tens--if not hundreds--of thousands more people laid off there, not to mention all the vendors and suppliers who would also be forced to lay off workers. Nearly every industry you can think off, short of medical and a few others, is in belt tightening mode right now, and more layoffs are all but imminent.
The OECD projected the unemployment rate to be 6.5 in Quarter 4 of this year; considering that we are already at 6.5 after October’s announcement, we are sure to beat that number. In addition, we must also remember that the Labor Department has been drastically underreporting jobless claims in initial reports. I blogged about this recently, but if they keep the underreporting ratio intact from the past couple months, we could see up to 200,000 more jobs lost than was originally announced for October. That would be scary, considering that the numbers for November look like they are going to be bad, too. We could very well end up with an unemployment rate over 7 percent by the end of the year, a number the OECD is not projecting us to top until Quarter 2 of 2009. By then we might be over 7.6 percent--who knows?
Really, I don’t see how we won’t top 7.6 percent unemployment before 2010, short of an amazing government intervention orchestrated by President-elect Obama. However, that of course would have its own set of ramifications for us to deal with. This problem isn’t going to get better any time soon, and this recession will be deep and hard felt. We can hope for the best, but just make sure to prepare for the worst. The way people have been talking about this OECD report as being overly grim, I just don’t think enough people truly see the big picture.
I really enjoyed reading your post, and also your refreshing opinion about the floundering financial markets. I am wondering if you can help me - I just started working with this group of IPs out of Germany with the MORE fund, which is an affiliate of Innoveas AG (www.innoveas.com) and they seem to offer some great alternative investment opportunities. I am wondering if you can offer me some of your insights about this. Thanks!
Sorry, I'm not familiar with that company or European private equity funds in general. So I don't think I'll be of much help to you.
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