Unemployment rate 1890 to Present
Talking heads make a lot of predictions. I remember a lot of conservative talking heads in early to mid 2008 predicting the economy would continue to be strong throughout the rest of that year. In contrast, I made the following predictions on April 2, 2008:
I see a Dow in the 7000-9000 range, the S&P 500 struggling to stay over the 1000 mark and a NASDAQ in the 1400-1600 range. I see unemployment and inflation both between fifteen to twenty five percent. I see many consumers defaulting on their credit cards and the major crisis in the banking and lending industry will be compounded by hordes of consumers defaulting on their credit cards. As a result of these credit card defaults, more banks will fail and major banking insurers will fail as a result as well as investment funds and securities that are based on credit card debt. I believe there will be consumer and corporate bankruptcies on a massive scale.
All of this came true except for the unemployment rate, and the reason that unemployment did not reach that high is because of government intervention in the crisis by both Presidents over the past 10-12 months. Recall, however, regarding my predictions that at the time I made them, the Dow was at 12626, the S&P was at 1370 and the Nasdaq was at 2279.
Today, on the Fox News' show "Cashin' In", I bet that in one year, unemployment will be at or below 7.5%. I backed up that bet with some serious, albeit humorous (for everyone but me, I assure you) potential consequences. We'll get back to the consequences in a moment. Most people, including those folks at Cashin' In off camera immediately after I made the prediction, have been asking me why I think that unemployment will get to such a comparatively low figure in only 12 months. Few if any other people are predicting this.
There are a couple of key indicators that tell me that not only are we in a recovery, but we are in the beginnings of what economists call a "V shaped" recovery, or as investopedia describes it ""a V-shaped recovery represents the shape of the chart of certain economic measures, such as employment, GDP and industrial output. A V-shaped recovery involves a sharp decline in these metrics followed by a sharp rise back to its previous peak.". I talked about some of those indicators in this article, http://www.opednews.com/articles/Economy-Recovering--Repub-by-Steven-Leser-090724-283.html . Since that article we've seen even more signs. Here is what leads me to believe we are in for a robust recovery:
1. As I noted from Kudlow's articles including his July 23rd "Recovery Canaries in the Economic Coal Mine ", http://www.cnbc.com/id/32105734/ Corporate income is up across multiple sectors
2. The housing market is recovering briskly - Sale of homes is rising.
The July report http://news.yahoo.com/s/afp/20090821/bs_afp/useconomypropertysalesbank_20090821210529 that came out August 21st showed that existing home sales in July rose 7.2% to an adjusted rate of 5.24 million units. This indicates a stabilization of the housing industry is well underway and if this is what is happening, it would have an immense positive effect on the economy.
3. The equity markets are up significantly and appear to be continuing to rise
4. Already, we see that monthly unemployment figures are stabilizing and perhaps even starting a downward trend in marked contrast to predictions that the unemployment rate would shoot up to 10%. The July unemployment figures stunned most economists when they dropped from 9.5% in June to 9.4% in July. While this is not a precipitous drop, it is an indication that those who predicted a continuous and significant rise in the unemployment rate were not correct and in fact that unemployment may recover faster and sharper than most predicted.
Finally, the lions share of the effects of President Obama's economic stimulus package will be felt in 2010. One third of the President's $787 Billion stimulus is/was tax cuts. Of that, $75 Billion is aimed at middle and upper middle class families who, thanks to the cuts, do not have to pay the alternative minimum tax. These tax cuts are probably what we have to thank for the economic recovery we have seen so far in 2009. When the infrastructure construction aspects of the stimulus get into high gear, coupled with strong corporate earnings and a recovering housing market and you have the ingredients for serious downward pressure on the unemployment rate.
Getting back to my prediction on "Cashin' In", one of the regulars on the show is Wayne Rogers, formerly of M*A*S*H. and House Calls fame. I'm a big fan of M*A*S*H, so I bet that the unemployment rate will be at or below 7.5% by August 22, 2010 or, in honor of Wayne and M*A*S*H, I would show up on the show dressed as Klinger.
Klinger from M*A*S*H
So now there are real consequences behind my prediction on the unemployment rate.