Economy

Unemployment Hits 7% for November

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Unemployment numbers for November were released today. The unemployment rate hit 7.0 percent for the first time since November 2008. If your recent economic history is a little fuzzy, that’s right about the time the banking crisis and housing market implosion was a full tilt. In other words, we’ve been over seven percent unemployment since the so-called Great Recession started. I get  a lot of questions about economic news stories. In particular, people want to understand the significance of the various economic statistics that come out better so that they can separate real new from hyperbole. So, let’s take a look at these unemployment numbers and see what the deal is. What Is the Unemployment Range? First, off, it can be hard to overstate how important unemployment (or more accurately, employment) is to the overall well being of the economy. I’ve covered before what makes unemployment numbers so important, so we’ll leave that out for today and focus instead on what is going on here, and why it matters so much. One question I get from time to time is why people get so excited over small movements in the numbers. That’s a good question. It can help to have …

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What Is the Misery Index?

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There are few institutions examined more scientifically or mathematically than the U.S. economy. After all, in-depth understanding of economic conditions mean billions of dollars to the right people and policy makers. Unfortunately, a nation’s economy is a complex machine composed of an almost infinite number of moving parts. Economists seek to study and understand the economy in many ways, often by simplifying things with numbers and formulas. One of my favorite names for an economic statistic is the Misery Index. How to Calculate Misery Index The original Misery Index was surprisingly simple. You calculate the Misery Index by adding the unemployment rate to the inflation rate. The idea is that both unemployment and inflation are negative factors acting against a positive economy. By combining them, you could get some idea of how much of a headwind the economy is facing. Under this methodology, things would be worst during a time where unemployment was high and inflation was also high. Also, check out this review of Credit Karma Ironically, the Misery Index can peak right before a strong recovery. Consider a situation where there has been a recession or depression. Unemployment rises as companies lay off workers to reduce costs and …

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July Jobs Numbers

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Just a quick update today. After all, it’s Independence Day week and I’m a freelancer, so that’s double time off (without pay). The July jobs data has a slightly unusual split thanks the Fourth of July holiday. The new unemployment numbers were released on Wednesday, a day early because Thursday is a federal holiday, while the hiring numbers will come out on Friday. July Unemployment Numbers The numbers released today are for new unemployment claims. In other words, these job numbers are a measure of how many people recently lost their jobs, not how many people are unemployed, or how many are being hired. Theoretically, you could have a huge first time unemployment number and a huge drop in the overall unemployment rate if a bunch of people were hired and fired over the same time period. In real life, it seldom works that way. So, without reading too much into these employment statistics, the initial jobless claims number dropped by 5,000 to a seasonal adjusted 343,000, which is slightly less than economists were predicting, but by no means any sort of blockbuster drop. Certainly nothing here will make anyone worry about inflation. The uptake is simply that the economy …

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Jobs Report Quick Update

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The most recent jobs report shows not only did the US economy create more jobs in April than expected, the number of jobs created in February and March were revised upward as well. This takes some of the steam out of the negative talk about the lower unemployment rate being only about workers who have stopped looking for jobs. The stock market is responding positively because job numbers are important to the overall economy. Numbers get revised in the following months as more data comes in. For example, the April jobs report was released just days after the end of April. That takes a bit of trust in your numbers. When you get to go back through them with a fine tooth comb, you can spot things that are different. You can read the CNN story about the jobs report for details.   More details to follow here on Finance Gourmet. Follow my blog with Bloglovin

Why Employment Numbers Matter So Much

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Employment numbers, or unemployment numbers depending upon your perspective, are a very important metric for the U.S. economy. As such, investors watch monthly employment reports released by the government very closely. But, why is the rate of employment, or unemployment, so important to the economy and Wall Street? At the very macro level, the American economy is made up of two parts, private spending and government spending. Broken down further, private spending can be split into spending by business and spending by individuals. In this country, spending by individuals makes up the largest part of economic spending. In a very real way, whatever direction consumer spending is going in, the economy is going in as well. Some times, there is a lag, but generally, if consumers are spending less, then the economy is shrinking. While it is true that people who are unemployed will be spending less money, their presence actually creates a bigger effect on the economy. When you see on television that a company is laying off workers, that impacts your mental state on a certain level. If the company isn’t in your state and not in your industry, it may barely register. On the other hand, if …

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What Causes Inflation?

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Recently, I wrote a little bit about inflation. Specifically, I wrote about why the Federal Reserve is so worried about inflation, and why good economic news and inflation often seem to go hand in hand. That led to some questions about what inflation is exactly and where inflation comes from. What Is Inflation? Perhaps, it is best to start at the beginning with a definition of inflation. Inflation defined is, The rise in prices of goods and services when spending increases relative to the supply of the market. In other words, when prices rise because spending, by business, or consumers, or both rises. Where Does Inflation Come From? Pinning down exactly what causes inflation can be tricky. Inflation is a simple word applied to a very big concept that encompasses a lot of how a market economy works. For starters, inflation is natural. This may come as a shock considering how much the Fed and the media harp on keeping inflation down. However, inflation is inevitable as long as the population within an economy is growing, as is the natural state of the human race. Consider a small tribe with a fully modern monetary economy. Let’s say that there are …

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Why the Fed Worries About Inflation

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The Federal Reserve, like many government agencies and organizations, has a dual mission. On the one hand, it is the Fed’s job to keep the economy running smoothly and maintain the economic and monetary systems the country depends upon. On the other hand, it is the Fed’s job to prevent rampant inflation from crippling the economy. Doing one job well, sometimes means messing up the other job. Under normal circumstances, the Federal Reserve uses its power to set interest rates to moderate the ups and downs of the economy. In a free market system, there are periods of expansion and contraction (good times and bad times). These variations in the economy occur for two main reasons. First, people (as a group), do not always behave rationally. Second, even when people are behaving rationally, there can be a significant lag between the arrival of data and the impact of that data on decisions. For example, when we talked before about how inflation works, we talked about a man named Brad who, when prices rise, cuts back on spending by cancelling his gym membership. Theoretically, the exact moment for this to happen is when Brad’s expenses increase beyond his income. However, in …

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Good Economic News and Inflation

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It seems any time economic news gets reported, there is a good news / bad news sort of thing going on. If there is an economic report that offers up good news about the economy, that is paired with the bad news that the Federal Reserve is either not going to do anything (recently) or may move to increase interest rates. Either way, that seems to worry some people, no matter how good the economic news might seem other wise. The Fed and Inflation The Federal Reserve’s mission is to regulate the U.S. economy independently of the U.S government. That role has never been as important as it has been lately when Congress and the President seem constantly paralyzed by politics from taking any steps or implementing any policy to help the economy. In particular, the Fed’s role is to help regulate U.S. monetary policy. This is a historical mandate, and it shows that those who created the Federal Reserve had remarkable foresight, because what is good for the country’s economy does not often square up with what is good for the political parties that want so desperately what to gain and hold power. There are two main missions for …

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Job Numbers Good News or Bad News

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On Friday, the US Department of Labor released the July non-farm payroll numbers. They showed that employment rose by 163,000 while the unemployment rate was basically the same at 8.3 percent. Of course, this is an election year, which means that within minutes, the airwaves were flooded with spin about how this was good news or bad news, depending upon your political persuasion. Truth in Money How do you tell if the July nonfarm payrolls data is good or bad? Among politicians, talk is cheap. There is no need to be accurate or correct, only to color the perception of the electorate in such a manner that you garner the majority of their votes. In other words, a politician, and their supporting ecosystem of political pundits and talk show hosts have no interest in what the jobs numbers, or other economic data, actually mean. How can you tell when a politician is lying? His lips are moving. In fact, many of them have only the barest of understanding as to what the data actually says. Instead, they have their experts comb through looking for what can be characterized as good or bad and then run with whichever one supports their …

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2012 Economic Recovery?

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It’s July 1st, and that means that the second quarter just ended. Recent economic data suggest that the housing market might finally be improving a little bit. Recent jobs data suggests that the labor market is at least holding its own, even though it isn’t strong enough to be lowering unemployment yet. How companies report their second quarter earnings will go a long way toward showing whether or not the economy will finally move forward faster than a snail in 2012. Economy Improving? Here is what to look for. Companies should report earnings that are pretty much in line with how well they did in the first quarter since there were no real up or down catalysts in the second quarter. However, what you really want to be looking for is the guidance that companies are giving for the next quarter and the rest of the year. If companies feel good about the rest of the year, that means that they are more likely to spend, or at least not cut. That additional economic activity is what this economy really needs to kick it over this hump because consumers are tapped out. A solid third quarter with rising expectations heading …

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