Unemployment to Rise?

We all know that jobs hold the key to a sustainable recovery. That being said, today’s unemployment report was decent. The unemployment rate to 8.8%, which is the lowest level in 2 years, and about 216,000 new jobs were added in March. The broadest measure of unemployment, U-6 unemployment, dropped 0.2% to 15.7%. Employment in the private sector was up while the public sector shed 14,000 jobs. This is a clear trend moving forward. While there may be month-to-month improvements in unemployment, there is a floor to how low the unemployment rate can fall because of the continued contraction in the public sector.

Unemployment Rate

U-6 Unemployment

It is always wise to view economic data with some perspective. Yes the labor market is showing some signs of improvement, but compared to previous post-recession recoveries, the current recovery is very weak. This late into the recovery cycle, we should have recovered all of the jobs lost in the recession. Instead, we have still not recovered over 7 million jobs lost during the recession. 

Furthermore, the unemployment rate is not as high as it should be. Discourage workers are dropping out of the labor force and the civilian labor participation rate is still hovering at the lows of this recession. The long-term unemployed (27+ weeks) also ticked up in March. As the perception of an economic recovery grows and people start looking for jobs again, the unemployment rate should rise.

 Civilian Participation Rate

Unemployed 27+ Weeks

The current unemployment situation is very interesting in that it can be read as both bullish and bearish. Unemployment has definitely recovered from the depths of despair in 2009. However, the recovery in unemployment has been very, very weak on a historical basis. With unemployment set to rise dramatically in the public sector, don’t expect the unemployment rate to fall much further. This is not your normal post-recession recovery. We still have a debt crisis on our hands that has not been resolved. Governments still need to cut jobs to balance their budgets. Although the perception is that the employment picture can only get better, the truth is that significant pressure in the labor market lies ahead.

Unemployment to Rise? is a post from: Expected Returns

HTTP://expectedreturnsblog.com

Read more at Expected Returns