A Deeper Look At Unemployment

Brittney Barrett |

The news that the number of people applying for unemployment has plunged in recent months has been a source for celebration in the global markets which, frankly, have little other cause to rejoice. Some are taking the unemployment numbers, at their lowest level since May 2008, to mean that the nation is out of the woods in terms of the recession. The fact that layoffs seem to waning is a positive economic indicator, but the numbers aren’t exactly what they seem.

The number of people applying for benefits last week declined to 366,000. It’s significant in that it’s below 375,000, the number where economists believe there’s reason to believe that hiring may be on the horizon. This also seems to dismiss the fact that the holidays are fast approaching, a time of year where employers are even more unwilling to lay off employees. Additionally, it completely disregards the number of people who have stopped applying for benefits or are no longer eligible for them. In early 2010, the number of unemployed Americans still receiving checks was 75 percent. Today, that figure is 48 percent.

Recent weeks have seen Congress debating over whether or not to extend unemployment benefits to 99 weeks, but this number is irrelevant to the thousands of Americans who are well past this mark. These Americans may have lost their job in 2008 and had a life time of work devoted to industries have been largely outsourced. Perhaps they were constructions jobs, which remain few and far between as breaking ground on new housing projects is increasingly rare. For these individuals, the jobs may not be coming back or at least not returning for an indefinite period.

Furthermore, the public reaction also seems to ignore that roughly 50 percent of the decline was the result of individuals that still qualify for the benefits giving up on looking for work. When people stop looking for a job, they're no longer counted as unemployed.  Many of these individuals may consider beginning to look again after the holiday, meaning the decline could reverse itself.

While some are celebrating the 120,000 jobs added in November, the number was lower than the month prior and was largely consisting of retail jobs. Over 50 percent of the total jobs added were in the retail sector, likely the result of seasonal employment, meaning the positive trajectory could reverse in the coming months. This also doesn't bode well for the college educated students entering the workforce in positions that don’t allow them to fulfill the obligations of their student debt. The jobs America arguably needs most in order for the economy to recover are those for the college educated, many of whom are taking part-time and full-time roles that require only a high school education, while being weighed down by the cost of tuition. This only puts them in a deeper financial hole once the economy does recover. Those missing private loan payments as a result of their inability to find a job that permits them to repay their debt are going to struggle for years before they can contribute meaningfully to consumer spending.

While this seems like a particularly bearish interpretation of a positive unemployment report, investors may want to act with caution before they count on robust hiring in the new year. If the declining number of layoffs does in fact mean more hiring is on the way, the trend has yet to prove itself.

 

Job openings, since June 2009 when the recession was said to have ended have rised by roughly 35 percent. This is an improvement, but at levels 25 percent below pre-recession levels and with salaries well beneath historical levels, the unemployment and underemployment battles are far from over.

 

 

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