Expect Higher Unemployment Rate as “Discouraged Workers” Return
Though the economy may add hundreds of thousands of jobs in the next few months, expect the unemployment rate, as a percentage, to rise, not fall. Thanks to the methods used to calculated the number of unemployed Americans, the unemployment rate will rise as job seekers return to the job market.
Discouraged Workers
The government, in its calculation of the unemployment rate, calls workers who have given up on the job hunt “discouraged workers.” These discouraged workers are no longer counted in the unemployment rate once they give up the job hunt. As such, even when employers add jobs, the unemployment rate continues to grow because new hires are displaced by the amount of people returning to the job market.
Opportunity for Huge Gains
Since the market is pricing in a higher unemployment rate, one month of huge job gains enough to reduce both the number of jobless and drop the unemployment rate will send shockwaves through the market. Economists have said already that it will take several years of positive employment numbers to bring the economy back to pre-recession levels. Many anticipate that we’ll need nearly a year of +500,000 new job numbers to stay afloat. Luckily, employment is rebounding, but we’re not surging. However, on a micro level of just one month, investors have the opportunity for quick gains in retail, tech, and financials should the job climate improve.
