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Unemployment-The Trend behind the Numbers
Dear Clients and Friends,
David Photo

Last week the Unemployment Rate, which came in at 10.2%; surprised economists as it came in above the consensus estimate for a reading of 9.9%. (You may recall that we predicted that unemployment would hit 10% last fall.) The Unemployment Rate is now the highest since April 1983, and it is only the second time that the unemployment rate has topped 10% since 1948!   To boot, the Labor Department reported that Nonfarm Payrolls for the month of October fell by 190,000 jobs, which was worse than the expectations for a decline of 175,000 (but nonetheless less that the 263,000 drop for September).  These stories garnered the lion's share of the headlines.



 




 

However, the bigger part of the story was not as widely reported.  First, in the week ending Oct. 31, the advance figure for seasonally adjusted initial claims was 512,000, a decrease of 20,000 from the previous week's revised figure of 532,000. The 4-week moving average was 523,750, a decrease of 3,000 from the previous week's revised average of 526,750.


What is unknown to most people is that the unemployment rate has tended to peak shortly after the end of the recessions.  Sometimes the unemployment rate can continue to rise after the recessions end.  Following the previous two recessions the unemployment rate kept rising for months following the beginning of a new economic expansion.

The obvious question that comes to mind is how can this be?  The reason is that full-time employment is a lagging indicator.  That means once it happens it is no longer useful as an indicator of future economic activity.  However over time and ours and temporary job growth are very meaningful indicators of future economic activity.  The reason for this is that over time hours and temporary employees or the first to go when business slows down and the first to be hired when business picks up.  Last week chart of the day reported that the gross in overtime hours over the last six months has been the largest percentage increase since 1984.  Additionally the Bureau of Labor Statistics reported last week that a temporary jobs increased by about 39,000 jobs in September.  Prior to that the economy had lost about 800,000 temporary jobs since the beginning of the recession.  Therefore when looking at the numbers behind the headline numbers one sees a picture of an improving job market. 


Please call if you'd like to talk; we are here for you (310-459-9196). Thank you for your continuing confidence. If you are a former subscriber or client, feel free to call as well. You can be assured that we will continue to ply our craft and we will get through this period and all of us will prosper again.


Thanks for your continued support and trust.

Best Regards,

David Fried
Fried Asset Management, Inc.
 
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