Global Recession News
June 14, 2009
June 13, 2009
Both the unemployment rate and the capacity utilization rate (roughly the proportion of total non-labour capacity for production that is being used) are good measures of the level of economic activity in a capitalist economy. Both these indicators show that the US economy is in the deepest recession since the Great Depression.
Monthly Review Editorial, June 2009
The Real Unemployment Rate Hits a 68-Year High – John Miller, Dollars and Sense
Euro unemployment at decade high
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Monthly Review Editorial, June 2009
The grim state of the U.S. economy in early 2009 was brought into sharp relief by economic data released at the end of April. Industrial production in the first quarter of this year dropped by an annual rate of 20 percent, while manufacturing capacity utilization (the operating rate of manufacturing plant and equipment) sank to 65.8 percent in March, the lowest level since the Federal Reserve Board series was introduced in 1948 (industrial capacity utilization as a whole is currently at 69.3 percent, its lowest point since that measurement began in 1967). So serious is the economic illness revealed by these figures that some mainstream analysts themselves are now turning from financial to production indicators and from short-term to long-term factors, in their search for explanations of the depth of the present crisis. Rather than simply representing a short-term financial shock, as was commonly supposed, there is now increasing suspicion, even among conventional economists, that the current economic crisis is embedded in some way in the real economy, raising more fundamental questions about the capital accumulation process.
A case in point is “Just How Big a Problem is Falling Capacity Utilisation?” by Izabella Kaminska, a Financial Times reporter. The ft.com/alphaville Web site, where the piece was posted on April 27, 2009, has plausibly become the most interesting forum in mainstream financial journalism for the discussion of the crisis. Kaminska quotes Merrill Lynch research as indicating that “utilization rates have collapsed for a broad range of industries such as motor vehicles, semiconductors or chemicals.” Seeking to ascertain the causes she notes that “economist Josef Steindl was among the most prominent academics to tie growing spare capacity, unemployment and general economic deterioration together. He did so in specific reference to the Great Depression.” Kaminiska herself seems to have only indirect acquaintance with Steindl’s work, and does not refer directly to his magnum opus Maturity and Stagnation in American Capitalism (Blackwell, 1952; expanded edition Monthly Review Press, 1976). She mistakenly identifies him as a member of the conservative “Austrian School” of economics, rather than as an Austrian economist who rejected the traditions of the Austrian School, in which he was raised, in favor of the traditions of Marx and Kalecki. Still, she relies as her main source with regard to Steindl on the excellent work of historian Michael A. Bernstein, who dealt extensively with the work of Steindl (and with Paul Sweezy, amongst others) in his book The Great Depression (Cambridge University Press, 1987), and on his article “The Great Depression as Historical Problem,” OAH Magazine of History (Summer 2001).
Using what she calls “a neat summary” of Steindl’s theory in Bernstein’s article, Kaminska underscores “three factors” in the modern accumulation process as described by Steindl, which, in her words, can be seen as “influencing each other in snow-ball type effect”: (1) the fact that prices are largely stuck in the downward direction in oligopolistic (monopoly capitalist) markets, leading firms to compensate for demand declines by reducing their capacity utilization rather than lowering prices; (2) the close correspondence between declining capacity utilization and stagnant investment, with the growth in excess capacity creating a cumulative process inhibiting further investment (capacity expansion); and (3) the reality that individual giant corporations, in reducing investment to prevent further build-up of excess capacity within their own firms, only intensify the economy-wide problem of rising excess capacity and declining investment. For Steindl (and for Paul Baran and Paul Sweezy in Monopoly Capital) the snowball effect of the interaction of these three factors helped to account for the economic stagnation of the 1930s. Kaminska uses this to highlight what she calls the “synergies between what is happening now and what happened back then,” i.e., in the Great Depression.
But Steindl’s conclusion that this process is the unavoidable result of the concentration of capital, is a stretch too far for our intrepid FT reporter, as indeed it was for Michael Bernstein. Instead, the problem of growing excess capacity is presented as crucially arising from disproportionalities between some sectors such as manufacturing, where excess capacity is extremely high, and other sectors such as energy (mining, petroleum, crude processing, and utilities), where it is lower. The remedy then is to redirect investment from the former to the latter, a process Kaminska calls “green rebalancing.”
This glimmer of recognition of the basic stagnation problem in a major crisis, followed by a quick retreat once the larger implications are grasped, would hardly have surprised Steindl. As he wrote in the mid-1980s: “Neoclassicism [in economics] lacks the candid innocence of the classics who maintained that poverty was necessary to make people work. Conscious of guilt and always on the defensive, it is purely apologetic. Its basic strategy is to eliminate history and society from the subject and reduce it to a mathematical exercise—an optimization problem. In this way capitalism is made to appear everlasting and unchanging” (“Reflections on the Present State of Economics,” Monthly Review, February 1985). On occasion, particularly in response to a major crisis, the best of mainstream economic analysts may cut through the ideological fog to see systemic, historical causes. But insofar as these put the system itself in question, a quick retreat is made to “optimizing” arguments, such as the need for a “green rebalancing,” as answers to such systemic problems of production. That the relations of power that reproduce the system are inconsistent with such spurious “solutions” is clear enough to us at MR from the history of our times, but unsurprisingly less so at the FT.
Still, we naturally hope that those with the courage to engage in the confrontation of reality with reason will be drawn by the hard facts of the economic collapse to reconsider Steindl’s Maturity and Stagnation in American Capitalism. It can be purchased online from Monthly Review Press. For a treatment of the current crisis that builds on the work of Steindl and Baran and Sweezy see John Bellamy Foster and Fred Magdoff, The Great Financial Crisis: Causes and Consequences (New York: Monthly Review Press, 2009).
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The Real Unemployment Rate Hits a 68-Year High
By John Miller, Dollars and Sense
Although you have to dig into the statistics to know it, unemployment in the United States is now worse than at any time since the end of the Great Depression.
From December 2007, when the recession began, to May of this year, 6.0 million U.S. workers lost their jobs. The big three U.S. automakers are closing plants and letting white-collar workers go too. Chrysler, the worst off of the three, will lay off one-quarter of its workforce even if it survives. Heavy equipment manufacturer Caterpillar and giant banking conglomerate Citigroup have both laid off thousands of workers. Alcoa, the aluminum maker, has let workers go. Computer maker Dell and express shipper DHL have both canned many of their workers. Circuit City, the leading electronics retailer, went out of business, costing its 40,000 workers their jobs. Lawyers in large national firms are getting the ax. Even on Sesame Street, workers are losing their jobs.
The official unemployment rate hit 9.4% in May—already as high as the peak unemployment rates in all but the 1982 recession, the worst since World War II. And topping the 1982 recession’s peak rate of 10.8% is now distinctly possible. The current downturn has pushed up unemployment rates by more than any previous postwar recession (see Table 1).
Some groups of workers are already facing official unemployment rates in the double digits. As of May, unemployment rates for black, Hispanic, and teenage workers were already 14.9%, 12.7% and 22.7%, respectively. Workers without a high-school diploma confronted a 15.5% unemployment rate, while the unemployment rate for workers with just a high-school degree was 10.0%. Nearly one in five (19.2%) construction workers were unemployed. In Michigan, the hardest hit state, unemployment was at 12.9% in April. Unemployment rates in seven other states were at double-digit levels as well.
As bad as they are, these figures dramatically understate the true extent of unemployment. First, they exclude anyone without a job who is ready to work but has not actively looked for a job in the previous four weeks. The Bureau of Labor Statistics classifies such workers as “marginally attached to the labor force” so long as they have looked for work within the last year. Marginally attached workers include so-called discouraged workers who have given up looking for job-related reasons, plus others who have given up for reasons such as school and family responsibilities, ill health, or transportation problems.
Second, the official unemployment rate leaves out part-time workers looking for full-time work: part-time workers are “employed” even if they work as little as one hour a week. The vast majority of people working part time involuntarily have had their hours cut due to slack or unfavorable business conditions. The rest are working part time because they could only find part-time work.
To its credit, the BLS has developed alternative unemployment measures that go a long way toward correcting the shortcomings of the official rate. The broadest alternative measure, called “U-6,” counts as unemployed “marginally attached workers” as well as those employed “part time for economic reasons.”
When those adjustments are taken into account for May 2009, the unemployment rate soars to 16.4%. That is the highest rate since the BLS began calculating the U-6 rate in 1994. While not exactly comparable, it is also higher than the BLS’s earlier and yet broader adjusted unemployment rate called the U-7. The BLS began calculating the U-7 rate in 1976 but discontinued it in 1994 in favor of the U-6 rate. In the 1982 recession the U-7 reached 15.3%, its highest level. In fact, no bout of unemployment since the last year of the Great Depression in 1941 would have produced an adjusted unemployment rate as high as today’s.
Why is the real unemployment rate so much higher than the official, or U-3, rate? First, forced part-time work has reached its highest level ever, going all the way back to 1956 and including the 1982 recession. In May 2009, 8.8 million workers were forced to work part time for economic reasons. Forced part-timers are concentrated in retail, food services, and construction; about a quarter of them are young workers between 16 and 24. The number of discouraged workers is high today as well. In May, the BLS counted 2.2 million “marginally attached” workers. That matches the highest number since 1994, when the agency introduced this measure.
With the economy in the throes of a catastrophic downturn, unemployment, no matter how it’s measured, will rise dramatically and impose yet more devastating costs on society and on those without a job or unable to find full-time work.
John Miller teaches economics at Wheaton College and is a member of the Dollars & Sense collective.
Sources: U.S. Dept. of Labor, “The Unemployment Rate and Beyond: Alternative Measures of Labor Underutilization,” Issues in Labor Statistics, June 2008; John E. Bregger and Steven E. Haugen, “BLS introduces new range of alternative unemployment measures,” Monthly Labor Review, October 1995.
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Euro unemployment at decade high
Unemployment in the 16 countries using the euro increased in April to its highest level in nearly ten years, official data has shown.
The unemployment rate in the eurozone rose to 9.2% from 8.9% in March, the highest rate since September 1999, the Eurostat data agency said.
Unemployment in the wider 27-member European Union (EU) rose to 8.6% in April from 8.4% the previous month.
Eurostat estimates that 20.8m people in the EU were unemployed in April.
This was an increase of 556,000 from March’s figure.
The number of people out of work in the eurozone increased by 396,000 to 14.58m.
In April, Spain had the highest unemployment rate of any country in the EU at 18.1%, followed by Latvia (17.4%) and Lithuania (16.85).
However, separate data from the Spanish Labour Ministry for May showed the number of people filing claims for unemployment benefits in Spain fell slightly after 14 months of steady increases.
The decline of 24,741 left the jobless total at 3,620,139.
Rises across Europe
Unemployment increased in 25 out of the 27 EU member states. Romania and Greece were the only countries which saw their unemployment rates fall.
In Germany, Europe’s biggest economy, unemployment rose to 7.7% from 7.6% in March.
And in France, the second-biggest, unemployment increased to 8.9% from 8.8% a month earlier.
Even if signs of economic recovery begin to emerge, economists warned that unemployment is a lagging indicator.
“It will be some time before any improvement in economic activity feeds through to help the jobs outlook,” said Howard Archer from IHS Global Insight.
“Furthermore, we suspect that economic activity will remain too weak to actually generate jobs overall until well into 2010.
“Deep and extended economic contraction, depressed business confidence and deteriorating profitability are currently increasingly feeding through to push unemployment up sharply across the eurozone.”
