Wednesday, July 21, 2010

We are still in a mini-depression

I believe that there is very little chance that the economy will slip into an outright depression, but that we are indeed in a mini-depression. I used that term back in March in a post entitled "Are we in a mini-depression?" and I believe that we are still mired in a mini-depression and unlikely to escape any time soon. Just today, in testimony before Congress, Federal Reserve Chairman Bernanke basically admitted that most of those 8 million people who lost jobs in the recent recession are not going to get jobs any time soon, telling Congress that "In all likelihood, a significant amount of time will be required to restore the nearly 8-1/2 million jobs that were lost over 2008 and 2009." He elaborated:

After two years of job losses, private payrolls expanded at an average of about 100,000 per month during the first half of this year, a pace insufficient to reduce the unemployment rate materially. In all likelihood, a significant amount of time will be required to restore the nearly 8-1/2 million jobs that were lost over 2008 and 2009. Moreover, nearly half of the unemployed have been out of work for longer than six months. Long-term unemployment not only imposes exceptional near-term hardships on workers and their families, it also erodes skills and may have long-lasting effects on workers' employment and earnings prospects.

Yes, that is gloomy, but not really as gloomy as it may superficially sound. As I wrote back in March, my hunch is that most of those 8 million will be back to work within five to seven years. Sure, that will be depressing for those people during the interim period and a drag on government budgets, but from here on out the overall trend in economic activity and labor employment will be up.

-- Jack Krupansky

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