Here is some perspective...
The U.S. stock market closed last week in a good mood, boosted by the jobs numbers in the United States. Specifically, nonfarm job creation of 163,000 for July was above analyst expectations of 100,000 but they fell behind the momentum of the early months of 2012. Nonfarm job creation had run at an average monthly rate of over 200,000 earlier this year which was probably due to unseasonably warm weather rather than to increased economic activity.
Monthly job creation numbers need to run at between 200,000 and 300,000 for several months in order to meaningfully lower the unemployment rate and accommodate an increase in the number of job-seekers. Instead, the open unemployment rate rose from 8.2% to 8.3% last month as the labor force participation rate dropped again, and average weekly earnings barely budged.
Even more important than the widely followed open unemployment rate was the rise from 14.9% to 15.0% in the under-employment rate which includes those working part-time involuntarily, and those who quit the labor force because they cannot find a job. This rate is down only marginally from the all-time high of 17.4% set in October 2009. And the long-term unemployed, defined as those without jobs for six months or longer, remained at over 40% of the total unemployed, as they have been since December 2009. The continuation of long-term unemployment would suggest that joblessness has become structural and, therefore, less amenable to monetary policy easing.
The significance of continued high unemployment is that consumer spending, which accounts for over two-thirds of gross national expenditure, is unlikely to increase sufficiently rapidly to facilitate faster economic growth. Just as further monetary easing by the Federal Reserve cannot cure structural unemployment, it will probably not succeed in encouraging households to increase spending and speed up the pace of economic expansion.
Summarized from: Komal S. Sri-Kumar, Chief Global Strategist, TCW
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