Business Advisory Blog Business management information from Robert Griffin.

March 18, 2011

Stagnant US Unemployment

I have read where various supposedly knowledgeable individuals when stating their solution to the continuing high rate unemployment that we need to increase our exports. Sounds logical but if you look at it historically that has not been a cause an effect relationship.

Fourteen years ago in 1996 we had an unemployment rate of 5.25% with approximately 7.5 million people out of work. At that time we were exporting $68.3 billion a month and importing $76.8 billion a month. Four years later in 2000 exports had increased 32% to $90 Billion and there was a corresponding 30% drop in the number of unemployed to 4.0 million or a 24% unemployment rate decrease. Imports at the time had increase 61% to $124 Billion. So that tells us that our ability to produce product kept pace with export demands. However, there was obviously a huge market expansion in the US the required us to import that we could not, or chose not to produce.

Four years later in 2004 Exports had increased again this time by 13% to $102 Billion per month. Imports increase by twice that rate or 26% and now total $156.6 billion. Over the eight years from 1996 to 2004 Exports have increase 50% while Imports have more than doubled. So in the two four year periods from 1996 to 2000 and 2000 to 2004 Imports have increase by twice the rate of Exports.

Well that’s not so bad if we continue to put more people to work and keep unemployment from expanding. But we didn’t. By 2004 the unemployment rate had risen 31% and was back to 5.25% vs 4% in 2000 and the same as in 1996 and the number of unemployed had risen 52% and now at approximately 8 million people actually exceeded the 7.5 million unemployed eight years earlier in 1996. So Exports increased but the employment picture declined.

Moving ahead to 2008, when Import and Export expansion peaked in July, Exports had risen to a monthly rate of $165.7 Billion, an increase of 62% from 2004, while Imports had increased to a monthly rate of $232 Billion an increase of 48% from 2004. If the theory of Exports = Jobs is correct a 62% increase in Exports must have made a huge dent in unemployment. Well unemployment did go down, it dropped from 5.25% to 5.0% and reduced the number of unemployed from 8.0 million to 7.5 million. That’s a drop of just 6.25% versus a 62% increase in exports or just a 10% correlation. So in the twelve years from 1996 to 2008 Exports increase by $97 billion per month or 142.5% and yet the number of unemployed remained at 7.5 million people the same as in 1996 and the rate down just .25 percentage points.

Since the economic debacle that followed 2008 where are we now, has anything changed? Well obviously everything got worse but did the relationship between employment and exports change? By September of 2010 Exports had declined 7% to $154.1 Billion since the 2008 peak. During that same period the unemployment rate essentially doubled to 9.6% from 5%, as did the number of unemployed increasing from 7.5 million people to just under 15 million.

Yes I know unemployment has gotten better and is now just under 9%, a 6.6% decrease in the six months since September 2010. But lets remember, while the total number of people classified as unemployed has declined the number of people that have given up looking for work has increase 10% over the past year to 2.7 million people. These are called “discouraged workers” and are NOT included in the number of unemployed or the unemployment rate. So while we show an improvement that is somewhat offset by an increasing number of those that drop out of the calculation.

During that same time frame exports have increased by nearly 7.5%, again a better than the improvement in unemployment without consideration for the impact of improving GDP had on the unemployment number.

So it appears unless what we’re Exporting changes to something that requires significantly more people to produce, history tells us, there is no way Exports are going to help the number of unemployed to any great degree.

Robert V. Griffin

http://www.griffinadvisoryservices.com

 

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