How high could the unemployment rate rise? [View All]

[DrToast]

As many of you have read, even though the economy is adding jobs at a healthy rate, there's still a chance the unemployment rate will rise as people return to the job market.

I crunched some numbers to get an estimate of how high it could rise. There are many factors involved, including how fast people return to the labor force and whether or some return at all.

However, if we look at the size of the labor for at the beginning of the recession, it's 153,869,000. Now add 125,000 per month for the 24 months since the recession began to account for normal expansion of the labor force and you've got a labor force of 156,869,000. Consider this what the labor force should be if people didn't drop out for being discouraged.

If all of those people returned next month, the unemployment rate would be 11%. So that's sort of our cap on the unemployment rate. HOWEVER, not all of them will return all at once. They'll trickle back in over the next 1-2 years or so.

The reason the unemployment rate shot up this month was because a staggering 805,000 new people entered the labor force in April.

In the two months before that, in March it was 398,000 and 342,000 in February. If the next year looks more like those two months instead of April, the unemployment rate might not increase at all and will likely fall.

I suspect the unemployment rate won't increase much more. Unless the next few months look like April and everyone rushes in all at once, I don't see it going higher than 10.1%.

And there's a good chance it resumes falling in the next few months.