No doubt, you’ve probably seen a chart of the unemployment rate recently. And you know about the surprise dip in last month’s unemployment rate.
By the way, that reduction has been roundly dismissed as a statistical mirage because more than not, it was caused by people who gave up looking for a job, rather than people actually finding a job.
If you think the level of unemployment is alarming, you’ll find the chart of the average duration of unemployment in weeks downright frightening:
Source: St. Louis Fed
The shaded bars, of course, represent instances and durations of recessions as determined by the NBER.
Since the Department of Labor started collecting data for this statistic in the late 1940’s, we haven’t seen unemployment last this long. The latest data is for July 2009 at 25.1 weeks - in other words, almost 6 months!
No wonder people are giving up looking for work. You would have to have the patience and fortitude of Job to persevere through such a harrowing episode. And remember, this is an average, so there are many who have been unemployed for much longer.
This means that the stock market recovery we’ve seen so far has not only been mostly a profitless, revenue-less one but also it is shaping up to be a jobless recovery. But then again, the stock market is famously supposed to be ahead of economic measures like unemployment.
Take the previous highest peak in the average duration of unemployment: July 1983 at 21.2 weeks. If we travel back in time to those days, it isn’t hard to imagine that we would be equally frightened at this statistic. However, thanks to hindsight we now know that by July 1983 the stock market had already bottomed and gone on to gain an astonishing 70% (for the Standard & Poor’s 500 index). So far, we’re only up about 45% since the March 2009 bottom - if it is indeed the floor.
So while the above chart may send a chill down everyone’s back about the health of the US economy, it doesn’t mean that the stock market is on borrowed time. More importantly, how can anyone look at it and still be worried about inflation?
Despite all the stimulus, the US economy is far, far away from reaching capacity and inciting inflation worries. I guess that is the narrow silver lining in this dark cloud.
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