February made up for the January losses as the S&P 500 was up over 4% last month, closing at an all-time high. Although some economic reports yielded weaker than expected numbers and the cold winter hindered some of the corporate earnings reports, stocks stayed resilient. As shown in the barometer below, bonds also added to their January gains. With few exceptions, most investors have done well in the early months of 2014.
One economic measure that has drawn some skepticism is the unemployment rate. It was in December 2012 when the Fed first mentioned the idea of keeping interest rates low until unemployment dropped to 6.5%. At that time, the unemployment rate was 7.7%. Just 14 months later, and the rate is already at 6.7% and we have barely started the tapering of the quantitative easing programs.
Since unemployment dropped so quickly during a time when it doesn’t necessarily feel like our economy is running on all cylinders, many question if the measure is manipulated or, at the very least, not indicative of what we are really experiencing. The unemployment rate is calculated based on information gathered from a survey, so you might think that there is room for errors. However, the survey includes around 60,000 households (approximately 110,000 individuals) spread across 2,025 separate geographic sampling areas1. Statistically, a sample size this large should alleviate any significant distortion of true figures.
The surveys performed put respondents into three categories: employed, unemployed, or not in the labor force. Another concern skeptics have about the measure is that some people are not considered part of the labor force even though they would like to work. These are the so-called “Discouraged Workers” or “Marginally Attached” that would like to have a job, but have given up looking. There are also a large number of workers that are underemployed, working part time for economic reasons.
The chart below looks at all these layers of unemployment to see how our economy is really measuring up. There is still a larger segment of the population NOT captured in the standard unemployment measure when compared to pre-recession times (e.g. 2007). However, the chart shows that overall, the advancement is real, good jobs are being created and our economy is slowly getting back on track. As baby boomers continue to become more comfortable with the idea of retirement, I see even more labor force improvements ahead.
This is just another reason we anticipate stronger markets ahead and encourage investors to be at their personal stock maximum. Let’s hope spring continues the tradition of strong markets instead of cold temperatures.
1 Source: Bureau of Labor Statistics
Index information is used to represent market performance, but you cannot invest directly in an index. Past performance is not indicative of future results.
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