Notes on the Front

More and more people will have loads of time on their hands to study the fall-out of the emergency budget – the growing numbers who will become redundant or get short-timed. Thank you, Fianna Fail, for giving us the time to brush up on competing theories of expansionary fiscal contraction. For we are certainly living the last two words, but not the first.

Unemployment ultimately drives everything – economic decline, lower consumer spending, business failures and, of course, more unemployment. That’s why, when crafting stimulus packages, other governments focus on jobs. Take President Obama’s initiative – it was expressed, not in higher company profits, or more export growth or even higher consumer spending; it was expressed in job creation. In fact, they have estimated where the jobs will be created on state-by-state and even congressional district basis.

Of course, our Government is not stimulating; they are deflating. So what does their new Macroeconomic Framework tell us abut the future rate of unemployment? It will rise to 12.6 percent this year and flat-line at 15.5 percent next year and 15 percent in 2011. You have to go back to 1986, when unemployment reached 17.3, to find unemployment rates this high. And this doesn’t count the short-timed, casual or under-employed workers.

However, the projected unemployment rates are annual averages. It doesn’t tell us how it will be at the end of the year. For example, in 2007, the unemployment rate was 6.4 percent. However, this was the average of all twelve months. Unemployment rose from 4.8 percent in January to 8.6 percent in December. So, while the unemployment rate was 6.4 percent, 2007 ended the year at the higher rate.

So, using the Government’s 12.6 percent average, where can expect unemployment to end up at this year?

[NOTE: I’m using the Liver Register’s Standardised Unemployment Rate. While the Live Register, in numerical terms, includes more than just the unemployed, the Standardised Rate is consistent with the more authoritative Quarterly National Survey, which unfortunately lags.]

Since September last year, the average monthly increase – in percentage terms – has been 0.6 percent. In the last three months, the increase has averaged higher – 0.8 percent per month. With these types of increases, we should expect unemployment, depending on the monthly variations, to reach something in the region of 14 to 16 percent by December. This would set up a flat-line for 2010 and 2011.

Okay so far. Looking further ahead, however, the figures become problematic. Between 2011 and 2013, unemployment is projected to fall from 15 percent to 11.8 percent. That’s a significant drop of 3.2 percent a two-year period. Are there precedents? Yes, but they are not very helpful.

There are four two-year periods where unemployment fell substantially. But, as can be seen, these were during the salad days of the phenomenal Celtic Tiger growth. The Government is projecting similar levels of unemployment decline based on GDP growth rates nearly half of what pertained back then. Good luck.

The Government is hoping for a V shape to the recession – a sharp fall followed by a sharp rebound. This is based on wholly optimistic assumptions which are probably not sustainable (doesn’t mean it won’t happen; after all, who among us predicted the scale of the collapse in the last year).

So, for unemployment they are relying on an upside down V shape – a sharp rise followed by a significant fall. The problem is that it could be an upside down L shape – a sharp rise followed by a flat-line. And there are historical precedents for this.

• Between 1989 and 1992, GDP growth increased by 12.2 percent. How far did unemployment fall? It didn’t.

We could be entering into a long phase of stubbornly high unemployment rates.  All the more so if the Government’s macroeconomic projections fall flat on its face – as I discussed here. With domestic demand being hollowed out by Government tax policy, with our export platform being whittled away through relocations, outsourcing, downsizing and liquidations, with Government consumption contracting – and the Fianna Fail expects this all to have a positive impact on employment?  Big ask, big wish.

All these questions will be answered in time – at the beginning of each month as the growing roll call of the unemployed is published in the Live Register. But we should pay particular attention to one part of they year.

A source in Social Affairs told me the Department is dreading the autumn figures. The usual seasonal variations suggest that unemployment will rise in the summer months and fall back in the autumn.

• 2006: unemployment rose from 153,000 in May to an August high of 170,000 and then fell back to 148,000 in October

• 2007: again, unemployment rose from 154,000 to 174,000 between May and August, falling to 157,000 in October, just short of the May level.

But a new, disturbing pattern emerged last year. Unemployment climbed from 201,000 to 247,000 between May and August – the usual pattern if at a higher level. Instead of falling in October, however, it rose still further – to 252,000. And continued rising until the end of the year.  If this occurred in a period where unemployment was only beginning to rise, what can we expect this year with unemployment soaring out of control?

A ‘bloodbath’ my departmental source said.

Of course, there is one economic activity that may yet save the day. It is an activity that past Governments have relied on with some success. It has saved a lot of Ministerial bacon. Our current Ministers may well be hanging out their bacon in the hopes it will be saved again.

Yes, that old reliable, that friend and succour of all Irish Governments in times of woe.

Emigration.

Aer Lingus may yet turn in a profit by the end of the year.