Stock Market Reports Loss For The Week – Is True Unemployment 13.8%?

Post 47 CoverStock Market Wraps Up The Week With Another Loss

The past week saw the stock market record losing days every day of the week except for Thursday.  Primary factors contributing to the losses this week are the recent surge in interest rates, a prediction of slower growth in the USA by the International Monetary Fund, a slight weakening in consumer confidence and also the fact that the stock market has gained so much in 2012 that a sell-off was due most anytime.

Investors reluctance to put fresh money to work at these levels was evident by the out-performance of the defensive stocks this past week.

For the week the S&P 500 lost 17 points or approximately 1% to finish at 1,627.  However even with the losses last week, the S&P 500 is still sporting a healthy 14% gain so far in 2013.

Below is a One Year Chart of the S&P 500 that illustrates the remarkable gains in the stock market in 2013.

 

(Click on Image of Chart for a Bigger Picture)

S&P 500

Even with the most recent correction over the past three weeks the S&P 500 remains in an uptrend.  Investors will continue to remain confident of a resumption in the six month long rally as long as the S&P 500 remains above the 1,610 level.  If you look at the chart you will notice a sideways range developing over the past three weeks.  It would be healthy for the stock market to move sideways for a period of time to help consolidate the gains from the prior five months.  This type of consolidation would create a foundation from where another attempt to establish an all time high could originate from.

 

Creating New Jobs Remains The Economy Biggest Challenge

Moving on to the economy, this week there was more good news on the Jobs front.  The release of Initial Unemployment Claims on Thursday reported a decline from the previous report to 334,000.  The 334,000 Initial Claims is around the level that in the past 20 years has signaled the start of job growth in more significant numbers.  For comparison purposes, weekly Initial Unemployment claims got as high as 650,000 in 2009.

Initial Unemployment claims are just one measurement of the health of the job market.  Two other primary measurements of the health of the job markets are:

  1. Bureau of Labor Monthly Payroll Report (Reports total number of new jobs created in past Month)
  2. Unemployment Rate (Most recently reported at 7.6%)

There are also several others measurements of the health of the Job Markets.  In order to get a true picture of the current health of the job market, you must factor in all of these different reports.

However what is generally reported in the mass media is just the one measurement – the Unemployment Rate (7.6%).

Arguably there is one measurement that probably captures the true condition of the job market more so than any other in just one Indicator. This indicator is known as the U6 Unemployment Rate and it is maintained by the Bureau of Labor Statistics.

 

What Does the U6 Unemployment Rate Measure?

The U6 Unemployment Rate starts with the Unemployment Rate (currently 7.6%) but also adds the following:

  1. Marginally Employed & Discouraged Workers.  These are people who want a job and have looked in the past 12 months but have not had success finding one.  Discouraged workers are workers who have completely given up on finding a job because they believe that they cannot find one.
  2. People who are looking for full-time work but instead are working at a part-time job due to economic reasons. This means that they want full-time work, but can’t find it so they are settling for a part time job or in some people cases job(s). There are millions of people in this situation right now.

So as you can see, the U6 rate is a much broader measurement of the unemployment and job market conditions and paints a clearer picture of the true condition at this moment in time.

Today the U6 Unemployment rate is 13.8% – This is significantly higher than the 7.6% unemployment rate that is usually reported in the mass media.

I would like to note that the U6 Unemployment Rate is rarely ever reported in the mass media.

Below is a 20 year chart of the U6 Unemployment Rate from 1994 – today.

 

(Click on Image of Chart for a Bigger Picture)

U 6 Unemployment Rate

On an optimistic note, the 13.8% U6 Unemployment Rate is off the highs of 17.3% in 2009.  However there is still much work to do to return the U6 rate to the levels of a healthy job market (somewhere around 7.5% – 9%).  Also unfortunately just by examining this chart for the past 20 years , it appears that the soonest the job market will return to levels that represented a healthy job market would be three years at the earliest – and perhaps as long as six years.

So when we hear stories of people struggling with finding full time employment remember this chart and remain sympathetic to their situation. While the job market conditions have improved over the past 24 months, it still a very difficult time for most people who are seeking employment at this time and it will continue to be this way for some time in the future.

 

Closing Thoughts

The past three weeks have seen the most selling of stocks so far in 2013.  However, after the sharp gains in the stock markets going back to November, 2012, it was time for some sort of correction.

June historically also tends to be one of the weaker performing months for the stock market most years.

The primary factor in the recent correction is fears that the Federal Reserve will be scaling back on their quantitative easing program which has resulted in the lowest interest rates ever.  However, I would like to point out that the Federal Reserve have made it clear that they do not wish to see interest rates move higher until the job market is much healthier.  The U6 Unemployment Rate that we discuss in this article shows that the Job market will need a lot more time to heal.  Therefore I expect that this recent surge in interest rates will be short lived and that interest rates will come back down some over the next few weeks.

 

 

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