Although there is already plenty of wise counsel warning that the economy will not soon improve, we need to also consider the possibility that things will get worse before they get better. Part of that is truly internalizing the fact that unemployment in the Charlotte region is running ahead of national averages by 25 to 30 percent. With that as a backdrop, what would happen if the national index surges toward 14 percent? Well, the local jobless rate may then hit 17 or 18 percent, up from the current 12 percent rate.
Too dire? Check out Louis Woodhill of the Club for Growth explaining how a Q1’s real nonresidential fixed investment as computed by the Bureau of Economic Analysis points to continued job loss:
This measure decreased 37.3 percent in the first quarter of 2009, compared with a fall of 21.7 percent in the fourth quarter of 2008. Given that employment is a direct, linear function of private business investment (PBI), unemployment can be expected to rise much farther in the months ahead.
Here’s why. Because a lot of PBI goes toward offsetting depreciation and increasing productivity, it takes a 5% year-over-year increase in PBI to produce a 1% increase in the number of jobs. Correspondingly, a 5% decrease in PBI will yield a 1% reduction in total employment.
The unemployment rate a year ago was 5.5%. Because the potential labor force is growing, we need employment to increase by 1% annually to keep the unemployment rate from going up. The 37.9% investment decline reported by the BEA can be expected to eventually produce a reduction in total employment of about 8.5%. Accordingly, we can expect unemployment to rise to about 14% within a year unless the downward slide of PBI is reversed.
This is admittedly the glass half-empty view. The view our local policymakers have not and will not get from the half-full crowd at the Charlotte Chamber. The view which suggests that city and county government, along with CMS, must get serious about right-sizing government for a permanently down-sized local economy.
Thus far we are just nibbling around the edges of fiscal restraint, as $8m. streetcar studies for the city and hordes of six-figure administrators at CMS attest. This is totally unacceptable. All available resources need to be re-directed towards basic, high-priority functions — now. Otherwise we may be facing a California-style fiscal meltdown, the first signs of which will be calls for massive local tax hikes to attempt to sustain the unsustainable.
There is nothing tricky or hard to understand about these numbers. Either we pay heed to what they tell us or accept the consequences.