Professor Nouriel Roubini predicts in a Forbes article that the unemployment rate could hit 10% by later this summer–around August or September–and will be closer to 10.5%, if not 11%, by year-end.
It’s clear that even if the recession were to be over anytime soon–and it’s not going to be over before the end of the year–job losses are going to continue for at least another year and a half.
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The unemployment rate rose only marginally from 9.4% to 9.5%, but that’s because so many people are discouraged that they exited the labor force voluntarily and therefore are not counted in the official unemployment rate.
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The other important aspect of the labor market is that if the unemployment rate is going to peak around 11% next year, the expected losses for banks on their loans and securities are going to be much higher than the ones estimated in the recent stress tests. You plug an unemployment rate of 11% in any model of loan losses and recovery rates and you get very ugly losses for subprime, near-prime, prime, home equity loan lines, credit cards, auto loans, student loans, leverage loans and commercial loans–much bigger numbers than what the stress tests projected.
Roubini also notes in his piece that based on the initial claims for unemployment benefits, it’s more likely that the job losses are closer to 600K per month rather than the figures officially reported by the the Bureau of Labor Statistics.
emphasis added
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I have no doubts regarding Nouriel Roubini’s intellect nor his integrity.
But I’d be curious to hear what he makes of the Federal Open Market Committee’s (and apparently many of his own analysts at RGE Monitor) estimating that the technical recession will end in Q3 or Q4 FY2009.
And he’s surprisingly self-assured in tone in this article. It’s an unpleasant surprise relative to the calm, data-based analytic reports he routinely puts out.