Shutdown, GDP and Unemployment

I’ve been quiet so far on the whole Government Shutdown thing. Other than trying to process the pure cognitive dissonance of stupidity, I’m also processing the fact that Goldman Sachs was first to downgrade U.S. GDP by .3 to .7% instead of the Fed. But then again, the Fed has their own problems right now.

What does a .7% GDP downgrade look like for everyday folks?

Well first, GDP is the measure that Economists use to gauge the growth of the economy. In the beginning of the year, the Fed projected that the Economy would grow by 2.7%. I thought this was way too optimistic, and instead I projected a 1.7% GDP growth.

A quick FYI: after recessions, the economy has historically grown 5 to 7%.

Why did I think 1.7%? The market was booming (still is), QE wasn’t going away anytime soon, so what gives? Simple Keynesian Theory. There is not now, nor has there ever been since 2008, anything that even slightly resembles positive Aggregate Demand. Also, the REAL unemployment rate has been stubbornly high. There is ALWAYS a correlation between unemployment and GDP, which usually reflects itself in Aggregate Demand. 1.7% was an off-the-cuff number, but with the recent Goldman projections, it’s on target.

Now add the Government Shutdown, and the impending Debt Ceiling issue. Do I think it will go lower than 1.7%? Only if the Debt Ceiling isn’t solved.

So who cares? Well, like I said, Unemployment ALWAYS correlates to GDP. So statistically working backward, let’s take the worst of Goldman’s number: 0.7% and correlate that with Unemployment.  The Pearson correlation is actually .89. So all things being equal (or good enough for government work), a 1.8% GDP growth (or a 0.7% drop from 2.5) translates to a .0062% rise in raw unemployment. Not much, right?

Except statistically, my projection of a 1.8% GDP drop equals 806,000 jobs lost WITHOUT the Government Shutdown.

800,000 people lost their jobs yesterday.

It only gets worse from here.

Add the debt ceiling thing, and I’m not sure where Unemployment would go, other than in a really, really bad direction.

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