Unemployment: Will it spiral out of control?

Marketplace Staff Aug 18, 2011

Unemployment: Will it spiral out of control?

Marketplace Staff Aug 18, 2011

Steve Chiotakis: The number of people seeking first time unemployment benefits rose slightly last week, by 9,000 claims. We also got word from the government this morning that the Consumer Price Index, a gauge of consumer inflation, was up about half a percent in July.

Michelle Meyer is senior economist at Bank of America Merrill Lynch Global Research, and she’s with us live now from New York to talk about that latest economic data.

Good morning, Michelle.

Michelle Meyer: Good morning.

Chiotakis: The number of people filing for jobless benefits is now above that 400,000 mark again, at 408,000. Why is that 400,000 threshold so important?

Meyer: I think it’s important because it symbolizes that the labor market is healing very slowly. But typically when you pass that 400 level, at least in the past ten years or so, it suggested that the unemployment rate can actually increase further.

Chiotakis: The 4 week average was down though, and that’s supposed to be a bit more reliable. Your assesment, if you will, of what the national unemployment picture looks like at the moment?

Meyer: It’s still elevated. The unemployment rate stands just above 9 percent, and I think the risk is that it increases further from here. I don’t expect to see a big spike further in unemployment, given that we’re already at such high levels. But it’s, it’s worrisome because demand is slowing in the economy, consumers are pulling back, the financial market certainly has been deteriorating. So there’s a lot of downside risks to the economy right now, which hurts confidence and restrains hiring.

Chiotakis: We also got these inflation numbers, Michelle, that show we’re paying a bit more for goods. Should a possible recession combined with inflation be a concern down the road?

Meyer: It can ultimately, if it’s sustained. But in my view, higher prices won’t be able to persist in an environment where you have such high unemployment because consumers won’t accept those higher prices…

Chiotakis: They’re just not going to buy.

Meyer: They’re not going to buy, or they’ll substitute a way to other types of goods. And with wages remaining very low, it won’t set into sentiment, so we’re still very far from a wage price spiral, which is what you’d need to get in order to see a stagflationary environment.

Chiotakis: Michelle Meyer from Bank of America Merrill Lynch. Michelle,thanks.

Meyer: Thank you.

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