2. Unemployment is lasting longer
Perhaps the most frightening statistic is the length of unemployment today. In the recessions of the early 1980s, the early 1990s and 2000s, the average duration of unemployment peaked at around 20 weeks. Today, five years after the end of the recession, it’s still at more than 30 weeks.
Economists on the right would decry the use of extended unemployment benefits, which some believe discourage work, as the reason for unemployment’s long average duration. Others talk about a skills gap–in other words, the unemployed mortgage broker cannot easily be reinvented as an ultrasound technician. But the hard truth is that regardless of the reason, if you lose your job today, you are likely to be unemployed for a far longer period than you would have been even in an earlier recession.
Market Realist – The average unemployment duration remains elevated.
The chart above shows unemployment’s historical average duration in the US. Currently, the average unemployment duration is close to 33 weeks. This is a little less than eight months.
Despite unemployment benefits, this impacted disposable income. We alluded to this in the last part of this series. Low consumption affected consumer-related sectors—like consumer discretionary (XLY). Also, lower disposable income put downward pressure on the real estate sector (IYR)(VNQ), although home sales figures have been picking up. Despite this, the S&P 500 (SPY)(IVV) had a good year. It had returns of close to 12%.
In the next part of this series, we’ll discuss the labor market’s third structural issue.