US unemployment up to 6.5 %

Monday November 10, 2008 1:30 a.m.

American unemployment rose very substantially from 6.1 to 6.5 % the US Department of Labour announced on Friday.The rate for October is a 14 year high and it looks like the rate will rise further in the coming months. A further stimulus package of 100 billion is being considered for the lame duck session of Congress and a larger amount of stimulus will likely be discussed in the new Congress in January.A total package of over 400 billion would be a better idea.Aid for the beleagured auto industry would also be a good idea. The consensus is that unemployment will exceed 8 % by the end of 2009.It may well go higher.
Over the past 10 months the US economy has lost over 1.1 million jobs.The rate of unemployment and underutilization of workers has reached 12 % including unemployed workers, discouraged workers and those who have had their hours reduced despite wanting to work full time.

In the 1981- 82 recession unemployment peaked at 10.8 % while the 1990- 91 recession saw unemployment peak at 7.8 % with the peak at 6.3 % in 2001. In the great depression unemployment peaked at 25 % of the labour force.

Given the large amount of stimulus that has and will be injected into the economy   hopefully the peak will be below the 1982 level.Policy makers and   the Fed are following the right path.

Outside the US central banks except for the ECB are on the right course. They must simply intensify their efforts.The European central bank ought to   understand that the risk of inflation is now nearly zero and that a more decisive rate cut is in order . They should also stop demanding that member countries stay within the monetarist inspired 3 % deficit collar which has clearly been overtaken by events.

Over the weekend both Great Britain and China have announced their intention to stimulate their economies. The Chinese will be spending close to $600 billion US on infrastructure and low income housing over the next two years and Britain is proposing to spend 15 billion pounds or 1 % of their national income on tax reductions   and other direct stimulative expenditures.This may well not be sufficient in the light of the rise in unemployment in Britain.

Time will tell.