Friday, December 5, 2008

More Than Half Million Jobs Axed in November

Employers axed 533,000 jobs in November, the largest cutback in 34 years. The Labor Department's report pushes the unemployment rate to 6.7 percent - a 15 year high. (Dec. 5)

What the Unemployment Rate Measures: The Unemployment Rate measures the percent of people who are actively looking for a job that didn’t find one in the past month. It doesn’t count the jobless who:

* didn’t look for a job in the past four weeks
* are so discouraged they have stopped looking for a job.

Unemployment is measured by the Bureau of Labor Statistics (BLS) monthly. The most important thing to compare is this month's unemployment compared to this time last year. If you compare this month to last month, there could be a reason based on the season, such as the school year ending. The BLS report usually will indicate that, but you have to look for it.
How the Unemployment Rate Affects the U.S. Economy: Obviously, the unemployment rate is important as a gauge of joblessness. For this reason, it is also a gauge of the economy's growth rate.

However, the unemployment rate is a lagging indicator. This means it measures the effect of a recession and so occurs after one has already started.

For example, employers are reluctant to lay people off when the economy turns bad, and even more reluctant to hire them when the economy improves. For that reason, the unemployment rate can only confirm what the other indicators are showing. For example, if the other indicators show a quickening economy, and the unemployment rate is declining, then you know for sure businesses are confident enough to start hiring again.
The unemployment rate is another indicator used by the Federal Reserve and investors to determine the health of the economy. In addition to the unemployment rate, they also look at which sectors are losing jobs faster. Investors might use this to determine which sector-specific mutual funds to sell.
How the Unemployment Rate Affects You: The year-over-year unemployment rate will tell you if unemployment is worsening. If more people are looking for work, less people will be buying, and the retail sector may start to decline. Also, if you are unemployed yourself, it will tell you how much competition you have, and how much leverage you might have in negotiating for a new position.
Recent Unemployment Trends: The unemployment rate has been improving since June 2003, when it peaked at 6.3%. Of course, by this time, the recession was over and GDP had already surpassed a 2% rate of growth.
The Unemployment Outlook: The economy is sending mixed messages right now, so no one really knows if unemployment will increase or not. However, the real estate industry is declining, and construction has always been a big driver of employment.
Many analysts predict that the Fed is safely guiding the economy through a soft landing, which means stable growth and low inflation. Many others are convinced the Fed has overshot, which means the effects of the declining real estate market will drag the economy down just as higher oil prices are driving inflation up. Since unemployment is a lagging indicator, keep an eye on the GDP and other indicators to see what unemployment will do.

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