As America starts to prepare for the reopening of the economy there is a serious problem awaiting everyone. Officially America’s unemployment rate hovers around 4.4%. That is the official government number before the pandemic killed the economy. Anecdotally, the unemployment rate is at, or above 20%. We will not know for sure for some time, but it is a good bet that the unemployment rate will be 20% or above when the actual numbers come out.
How bad is that?
It is an economic catastrophe.
To understand how serious it is we must look at the historical unemployment rate.
First, however, we need to understand that unemployment always exists in an economy. There is no such thing as 100% employment. The United States federal reserve considers an unemployment rate between 3.5% and 4.5% as “healthy”. If it falls below that, companies have a hard time hiring qualified workers which leads to inflation.
Likewise, a recovering economy does not automatically translate into lower unemployment numbers because companies do not hire immediately after the economy recovers. The companies first recover and then look to grow their workforces. As such, the unemployment rate is the last to recognize a recession and the last to demonstrate a growing economy.
It will take months before unemployed workers find jobs or recover their jobs because of the lag in the rising economy and the hiring of workers.
In 1929, when the market crashed starting the Great Depression, the unemployment rate was 3.2%. By 1931, the “Dust Bowl,” the unemployment rate rose to 15.9%. By 1933, it was at 24.9%.
In 1941, when Japan attacked the United States at Pearl Harbor, the unemployment rate stood at 9.9%. This was after the mobilizations for World War II and the governments’ job stimulus packages of the New Deal and others.
By the time World War II ended, the unemployment rate stood at 1.9%. By 1949, it was up again at 6.6%. There it remained hovered between 2.7% and 7.2% when the 1980 recession started. By 1982, the unemployment rate was 10.8%. It hovered around 6% to as high at 9.9% (2009) until 2016, to 4.7%, when Donald Trump was elected. In 2019, it was at 3.5%.
As the reader can see, the highest unemployment rate was 24.9%, because of the Great Depression.
At the estimated 20% unemployment rate of 20%, the United States is almost as high as its highest unemployment rate of 24.9% and considerably higher than the general rate of 5% to 6%.
Like the U.S. government has done in previous instances of soaring unemployment rates it will launch stimulus packages to deal with them. One such stimulus package has already been adopted. But it is clearly not enough.
Congress will surely launch new economic incentives to bring back the unemployment rate down to below double digits.
Basically, Congress will start printing money.
In the last 90 years, the unemployment rate has reached double digits only 11 times. They were 1931, (15.9%), 1932 (23.6%), 1933 (24.9%), 1934 (21.7%, 1935 (20.1%), 1936 (16.9%), 1937 (14.3%), 1938 (19%), 1939 (17.2%), 1940 (14.6%) and 1982 (10.8%).
At 20%, the government will be forced to print money to stabilize the country.