Unemployment is a huge problem in the US. Actually, it is a big problem all across the Western world. Right now, the unemployment rate in the US is hovering above 8%.
It was over 9% at the beginning of this recession, so it is a situation that is improving. There are many factors at play in the employment picture in the US, but right now, it is one of the most important pieces of how we will recover.
I’m watching the jobs numbers closely, mostly for my own employment situation. A low unemployment rate gives me more leverage when I’m negotiating my way through my career.
Unemployment and the US Economy
It is vital to the US economy that we have jobs and that people are employed. That main reason is that 70% of our GDP comes from domestic consumption. That means a vast majority of our economy runs on people in this country buying stuff.
If people don’t have jobs or are afraid of their future job prospects, they will be less likely to spend money. I know that a 6% unemployment rate doesn’t seem so different than 8%, but it is. It is not just the 2% difference that is affected. It is also the 92% of people who are employed who are uncertain about their future financial situation.
That means even if you are employed right now and have a good bit of money in the bank, you will be less inclined to spend it. You will be worried about the future, about job security and will want to save your money rather than spend it.
Now in normal economic times, saving money is actually a good thing. But when we need the economy to get going again, it’s a problem.
I still don’t get how that is sustainable to have most of your GDP come from domestic spending.
Economic Indicators – Employment
In normal times, employment is still an important component to watch in the stock market. But right now, it is one of the most important. That is because everyone understands that this is the foundation for a true and sustained recovery.
That is why even in the Federal Reserve committee meetings, the employment picture constantly comes up. Without a full recovery in jobs, there is no full recovery. There are no ways around it.
Fundamental Problems with Jobs in the US
The main problem is that US light manufacturing has mostly moved overseas. I felt it first hand when my mother was laid off of a textile plant in North Carolina back in the 1990’s when they moved operations to Mexico. Those jobs were already on its way overseas, but the financial crisis accelerated it considerably.
The thing is that there are still a lot of jobs that are vacant right now. Many companies are still looking for workers. The gap in the employment picture is that the high demand jobs are all high skill work.
The unemployment rate for the IT industry is 3%, even now. That means if you are a software engineer, you could get a jobs in virtually an instant. But if you have no skills and can only do a simple , repetitive, manual task, you won’t find any jobs in the US. Those functions still exist, but they have been taken over by machines and computer systems.
The Jobless Claims Report
This is a report that comes out from the US Department of Labor every week. It is released on Thursdays at 8:30am EST and covers the previous week.
Again, this report has a lot of power to move the stock market right now.
This report can be very volatile week to week, so many economists and analysts use a 4 week moving average to smooth out the noise.
How to Invest or Trade Employment Reports
Like I have said already, these reports have a lot of power to cause the market to rally or decline right now. But how much it moves the market depends on what else is going on around that time. That is why it is important to keep an eye on all the other major economic news surrounding the report’s release.
Learning how to invest in stocks based on employment reports doesn’t have to be hard. You just have to watch what the market does on the reports as it is released. You also need to get a sense of what economic context it is released in and how investors respond to it.
