Louis Woodhill on RealClearMarkets is arguing that the low level of business investment we have seen is to be associated with a much higher level of unemployment:

The BEA numbers (which were revised slightly on June 25) show an accelerating decline in “real nonresidential fixed investment”. 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.

Unemployment at the end of December, 2008 was 7.2%. Six months later it is 9.5% – a gain of 2.3%.  If unemployment continues to rise at that rate for 12 more months, then we could indeed see 9.5+4.6 = 14.1% unemployment.  Investment is fueled by savings.  Although the government reports the savings rate up to 7% of income and rising, that figure includes paying down debts…little of the new savings is going to taking on new risks…so the slide in PBI may NOT be reversed anytime soon.