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The high unemployment reflects the lack of demand rather than any fundamental problems with the US labour market

The bursting of the house price bubble caused a collapse of residential construction and a sharp fall in household wealth that led to a decline in consumer spending.

Nominal house prices are still falling, continuing to depress construction and household spending.

The reduced spending by consumers has caused companies to cut back on production. With little prospect for an upturn of demand for their products, businesses have laid off large numbers of workers, reducing incomes and raising the unemployment rate.

Martin Feldstein FT 25 July 2011

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