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Unemployment May Peak at 10%

A little more than 11 months ago I wrote a blog that called for 9 percent unemployment by May 2009. At the time, the forecast received some criticism - mostly from people in denial about the severity and depth of the financial crisis. Well, it looks like 9 percent national unemployment is a reality, but if you read on, there is good news to report as well.

A little more than 11 months ago (May 29, to be exact) I wrote a blog that called for 9 percent unemployment by April 2009, when the official numbers are reported in early May of this year. At the time, the forecast received some criticism - mostly from people in denial about the severity and depth of the financial crisis. Well, it looks like 9 percent national unemployment is a reality, but if you read on, there is good news to report as well.The forecast, based on commentary and analysis from University of San Francisco business professor Jon Fisher, tracked the correlation between decreases in housing starts and rising unemployment. Fisher (and it was all Fisher's analysis, I'm just the messenger) tracked data back to 1959 and found that as housing starts fall, unemployment rises shortly thereafter. It's an amazingly simple correlation, but so far has proved to be dead-on accurate.

But now, it seems we are nearing the bottom of the housing start decline, which means national unemployment should stabilize and not surpass 10 percent, according to Fisher, who is also the author of Strategic Entrepreneurism. Privately-owned housing starts in February were at a seasonally adjusted annual rate of 583,000, according to U.S. Census Bureau and the Department of Housing and Urban Development. This is 22.2 percent above the revised January estimate of 477,000, but is 47.3 percent below the revised February 2008 rate of 1,107,000.

The good news in these numbers is the increase in housing start numbers from January to February 2009, indicating that the market may have hit bottom. The March housing start numbers aren't available yet and, yes, the number could drop again, but indications are the number will at least stabilize and hopefully rise. "If you look at the graph, once the new housing starts hits bottom, it is a classic v-shaped recovery in the new housing starts and then very quickly - not a year later, but a quarter or two later - there is a corresponding cap in national unemployment, which stabilizes and then decreases," said Fisher in a voicemail message. Finally, some good economic news! (See the chart at the bottom of this blog).

If the model holds true, we may see a period of stabilization and then recovery later this year. There were 663,000 non-farm payroll jobs lost in March and January's job loss tally was revised up to 741,000. Investors were expecting job losses of around 650,000 to 700,000 in March - shocking numbers in any economy, but after a while it seems these huge numbers are numbing. Overall, the national unemployment rate moved up to 8.5 percent and the economy has lost over 5 million jobs since the recession began in December 2007. "I forecast 5 percent to 9 percent unemployment in 12 months," added Fisher. "And if we have indeed reached the bottom in new housing starts, then I will also forecast a cap in national unemployment at 10 percent, and then we will start to decrease. This is really message of hope in this whole terrible dialogue."

A little more than 11 months ago I wrote a blog that called for 9 percent unemployment by May 2009. At the time, the forecast received some criticism - mostly from people in denial about the severity and depth of the financial crisis. Well, it looks like 9 percent national unemployment is a reality, but if you read on, there is good news to report as well. Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology. View Full Bio

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