The difficulty of the pattern change in evaluating the current crisis is the uncertainty as to which type of pattern is likely to prevail when the crisis passes, the old pattern, the more recent one, or something yet again different. In addition, the relative position of unemployment in the causal chain has shifted in the current crisis in a way never before experienced. Rising unemployment is usually a reaction to declining demand. As it rises, it feeds, in turn, the decline in demand exacerbating the problem. It is a middle link in the causal chain. While it can, to a degree, anticipate and precede an impending drop in the economy, that is related to the anticipatory behavior of businesses sensing a shift before it is statistically apparent. The same pattern works in reverse as recovery begins. In this crisis, the drop in employment is at the front of the causal chain, concurrent with business closures or even the cause of the closures in some cases due to sick employees. Demand had not fallen before the sudden closures to any significant degree and showed no serious signs of doing so. This different position in the causal chain will also be true whenever recovery begins. Businesses will be allowed to reopen before, indeed without clear indication of, demand ratcheting upwards because declining demand was not the reason they closed in the first place. Thus, employment will rise in advance of other economic activities, at least to some degree. Business closures, whether by order or by viral impact, have caused a jump in unemployment claims of over 36 million people in the space of a few weeks. The unemployment rate of April was 14.7 percent, a figure not approached since 1940. Even at the start of the Great Depression, it took two years for annual unemployment figures to rise to double digits. They did not fall to single digits again for ten years. The only other time that unemployment reached double digits on an annual basis since then was during the Regan-era recession in 1982, and only for one year. May of this year was better than April, but only marginally so at 13.3 percent. The graph on the following page shows the years and figures when unemployment reached double digits since 1929, along with the figures for April and May of this year. Of course, April and May are but two months, not a full annual average. However, there is no doubt that the unemployment rate will remain high for a considerable period of time or that the annual average for this year will be in the double digits. Inflation rates or pricing patterns are by far the most erratic of major economic indicators for a variety of reasons. Inflation at a modest level has come to be regarded not only as acceptable, as was once true, but even good. This is a change from the lingering fear of inflation left from the period of stagflation and high price/interest rate levels in the 1970’s and early 1980’s. There is a general belief that inflation is tied to the “temperature” of the economy. An overheated economy, one that is growing too rapidly, is believed to be unsustainable and to lead to a spike in inflation. Conversely, a cooling or declining economy may cause prices to fall.
∴ PROGNOSIS
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