With about 8 million jobs lost since December 2007 and unemployment coming off it’s highest level in 26 years, in terms of job losses this has been the worst recession since the end of World War II more than 60 years ago.
The number of people unemployed is about 15 million. Almost half are considered “long-term unemployed” and have been unemployed more than 27 weeks. The number of persons working part-time for economic reasons (sometimes referred to as involuntary part-time workers) is roughly 8.9 million. About 2.4 million people are “marginally attached to the labor force” and have not looked for work in the past 30 days. Another 1.1 million people are “discouraged workers” who have given up looking for work as they believe no jobs are available.
The headline unemployment number has dropped from it’s recent highs to 8.8% which on the surface appears that we are headed lower. But this number fails to include the millions of people who dropped out of the employment pool because they were too discouraged to continue looking. If you were to go back only 2 years and include the people who were in the labor force back then, the headline number would be more like 10%.
High Unemployment Is Good For this Business
There is a direct correlation between unemployment and the credit card charge off rate. Credit card charge offs track almost exactly the unemployment rate. As you will see in the chart below, between 2000 and 2010 only twice has the variance been significant. The first was following the September 11, 2001 attacks. The second was in 2005 when tens of thousands of consumers raced to file bankruptcy before the change in bankruptcy code.
Regardless of your optimism or pessimism, the nation is clearly facing a sustained period of high unemployment. Even if unemployment does begin to recover it will be at at slow pace that will take place over the next 3-5 years. Because there is such a remarkably close correlation between unemployment and the credit card charge off rate, it can only be expected that the credit card banks will continue to suffer large losses.