Tuesday, January 13, 2009

The Almost Daily 2¢ - Unemployment, Foreclosures and The Obama Spin

If there is only one chart you can focus on today, make it the following which both demonstrates the relationship between rising unemployment and rising foreclosure activity and the housing booms mitigation of foreclosure activity during the dot-com bust as well as gives a clear indication of how early we still are in the contraction phase of the employment cycle (click for larger).

Although the chart above covers Middlesex County in Massachusetts, you can likely substitute just about any affluent suburban county that directly borders one of the country’s larger cities, especially cities in the northeast.

The two most important details that this chart reveals is that incidence of foreclosure and rates of unemployment should generally be expected to peak together and that unemployment “spikes” should be expected to take at least two to three years simply to get to the peak.

In fact, the average length of time to reach the peak of an unemployment spike (base month to peak month) for the last four recessionary periods was roughly 2.25 years.

So, unless you believe that either our current period of unemployment will be shorter than average or you include 2007 as a whole year of rising unemployment, we are likely looking at an additional year or possibly even nearly two years to simply reach the peak in unemployment.

Also, it’s important to keep in mind that even after the peak, periods of unemployment take a long time (many years) to play out and that our current predicament should be expected to heal particularly slowly as many millions of specialized workers are forced to make significant and complicated job changes in order to become productive workers again.

Another important detail the above chart reveals is that during the “dot-com” bust rising home prices all but eliminated the incidence of foreclosures as stressed households could either choose to borrow from their homes equity to stay afloat financially or simply sell their home at a profit and switch to a more modest housing arrangement.

Today though, there is no equity cushion.

Finally, I want to draw your attention to a chart that was supplied with president-elect Obama’s recent whitepaper titled “The Job Impact of the American Recovery and Reinvestment Plan”.

Comparing the Obama chart to past periods of unemployment it is clear that the Obama administration is more than optimistic.

Massive government spending notwithstanding, there is absolutely NO chance that unemployment could be made to peak by June of 2009… It’s simply not possible and reveals an early insight into the new administrations clever twist of spin.

Where the Bush administration was famous for their “the economy is fundamentally sound” spin, the Obama administrations appears poised to repeat effectively the same behavior with random propositions of “creating OR SAVING” millions of jobs as well as presenting forecasts that Obama’s own economic advisors must know are simply outlandish.