Monday, December 5, 2011

US Real Unemployment@8.6%

US unemployment came down to 8.6%.This news will bring smile on everyone’s face particularly on the face of speculators of the sock market. A question might come in your mind why I did not take the name of American people who have got job since I don’t trust the data. US political elections are going to be held in less that a year time and hence we will find many surprise numbers supporting to boost the economy and start of borrow and spend. America's employment report is based upon two type of survey reports: one of employer payrolls, which yielded the 120,000 gain; and a separate one of households, according to which employment rose 278,000.

It's the latter survey that's used to determine the unemployment rate. Unemployment drooped as more people are giving up looking for work, there’s the potential for rapid shrinkage in the pool of available employees. The number of people looking for a job fell by 315,000 and the number of people counted as not in the labor force (a different measure) swelled by 487,000 to a record 86.5 million. 120,000 jobs creation is not enough to uplift the growing unemployment in US. US are having an average of about 114,000 jobs a month for the last 6 months. Hence the recent data should be analyzed in a different way to find out the real growth of the US economy. After remaining obsolete for more than 3 years since 2008 most of the work forces of US have lost their skills of jobs.

From the below figures of the chart we can find about the movement in PMI (manufacturing production) which is just plummeting as months progress. Of the emerging world, only India and South Africa are growing and it seems that these tow countries are also going to loose the steam.

What we should Discount?
Hence drop in numbers is not to be taken in a big way. Consumer surplus and increase in manufacturing will be key data to be watched in 1st quarter of 2012 not for the 4th quarter of 2011.Since we all should discount the all the economic numbers of 2011 4th quarter since festive season will spook employment and consumption and manufacturing will also grow. But once the season of festive is over growth will slowdown. What we need to understand is that growth of economy of US should not be seasonal affair. We speculators are turning the economic data’s for a seasonal upside in the market. We economists need to look beyond the seasonal affairs. Further unemployment decrease is not the prime factor to be watched. Wage reduction has increased with the unemployment as demand for jobs are higher. The government reports that real average hourly earnings fell 1.6% from October 2010 to this October. Hence 8.6% unemployment from 9% should not be taken as a big improvement of US economy.


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