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Is the employment situation better than it seems?

March 25, 2009

No doubt the labor force is under severe stress. The unemployment rate has moved to 16-year high of 7.2% after another 524,000 people were canned in December. This brings the total annual loss to 2.6 million, the highest since 1945.

People are scared. My friends are scared. I'm scared. But is all this fear justified?

While the number of unemployed is very large, we need to examine things in relative terms. And when we look at percentages instead of absolute numbers, this recession is no worse than others of the post-war era. This could help the bulls as they try to sustain a weak uptrend out of November's lows.

As the Economist's Free Exchange blog points out, the U.S. labor force is now 39% larger than in 1982 and a two-and-a-half times as large as in 1948. So the current job losses represent about 1.9% of the total workforce. For a 12-month-old recession, we are right on the median.  

With the question of magnitude out of the way, let's talk about timing. Again, I think there is reason for optimism. Historically the employment situation reaches its nadir around the 12 month point. For the sake of the growing ranks of the unemployed, let's hope history repeats itself.


Anthony Mirhaydari is a contributor to the Strategic Advantage investment newsletter. He can be contacted at