Consumer spending on housing or at retail stores tends to create jobs for less educated workers, while increasing sales at Boeing or Caterpillar tend to translate into jobs for engineers and skilled workers. Companies are often reluctant to lay off these specialized workers, because they are difficult to replace and time-consuming to train.
The unemployment rate has not declined much in this recovery because there hasn’t been much activity in the construction and consumer sectors, and because manufacturing for the most part retained the employees they need to meet increasing demand.
The unemployment figures support this picture (Bureau of Labor Statistics). The unemployment rate for people with less than a high school education jumped from something around 8% early in the decade to above 15% for much of 2009 and 2010. For people with a college degree, the rate increased much less from 2-3% early in the decade to about 4.5%.
To materially affect the unemployment rate, it would be necessary to rekindle consumer spending, which normally means encouraging consumers to take on more debt.
|Consumer Bankruptcy Filings|
This will be difficult to achieve, no matter what the government or the Federal Reserve do.
The current number of consumer bankruptcy filings per moth is almost three times what we saw in 2006. It is understandable that consumers don’t want to exercise their credit cards right after getting into trouble for buying too much house and too much of everything else.
Because of bankruptcy or a new-found sense of fiscal responsibility, the amount of outstanding consumer debt has been declining pretty steadily.
|Outstanding Consumer Debt Excluding Mortgages|
Currently the outstanding debt translates to about $7000 for every man, woman, and child in the US. Reducing consumer debt is surely a good thing in the long run.
We expect this debt diet to continue. The unemployment rate is likely to remain elevated for as long as it does even as manufacturing continues to recover.