Unemployment rate actually worse: Independent Financial Advice
Posted by Don Martin on Fri, Nov 04, 2011 @ 05:33 PM
Understanding unemployment
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Today’s monthly non-farm payroll report showed a jobs increase of 80,000, which was close to my estimate of 65,000. The household employment on a payroll and population adjusted basis fell by 73,000. Unemployment fell by 0.1% from 9.1% to 9.0%. To add jobs faster than population growth requires at least 125,000 jobs each month and to get out of recession and back to normal requires 200,000 jobs monthly for several years.
Analyzing unemployment is like looking at interest rates and then adjusting for inflation to find the “real” rate of interest. If you earn 3% and lose 2% to inflation the real rate is 1%. The analogy is that if 80,000 news jobs were created but the population is growing by 125,000 a month then the difference is negative 45,000 jobs. So the real change in unemployment rate should be 45,000, but the government has calculated it at a 73,000 net loss a payroll and population adjusted basis.
The jobs increase is small change - not enough to help
How does this affect investors?
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What this means for investors seeking independent financial advice is that the bond market will continue to have low rates because high unemployment usually correlates with low inflation and low interest rates. Today the 30 year Treasury ETF "TLT" closed up in price by $0.14, a 0.12% gain and the ten year Treasury rate went down 0.016%. So the marketplace is treating the monthly payroll report as a sign of negative "real" job growth.
I have written an article “Friday payroll news to provoke QE3” however today’s rate is probably not a low enough rate to provoke QE3 and “Unemployment problem unsolved”.
Investors should seek independent financial advice. 