Unemployment Dropped to 7 Percent: May Delay Stimulus Package Dial Down

By Chris L. Meacham, CPA,

Cornerstone Wealth Management

Analysts seem to agree that as of November the unemployment rate has dropped to 7 percent. However, agreeing on what the unemployment rate says about the state of our economy is a different story. Some analysts argue that the rate has dropped simply because government employees are coming back to work. Some say the rate is skewed because people have dropped out of the labor force.  Some argue that it reflects a recovering economy, while some claim that the health of the economy is based on much more than the unemployment rate.

Analysts do seem to agree that the unclear outlook for jobs might delay the Federal Reserve’s plans to dial down its stimulus package by the end of this year. Atlanta Fed President Dennis P. Lockhart said the data will likely remain murky through December and that he does not expect the recovery to improve until next year — if then.

According to

International Business Times

, Gus Faucher, senior economist at PNC Financial Services, said, “My guess is that they will wait one more month. I think they want to get one more month of data and they’ll wait and make sure that Congress is getting its act together before the Fed makes a decision to reduce purchases.”

The

Washington Post

provided the following statistics about the current unemployment rate:

  • As of October, 815,000 Americans were officially classified as so discouraged by their employment prospects that they had stopped looking. This caused the percentage of people in the workforce to be at its lowest level in 35 years.
  • The American economy is moving toward increasingly skilled labor. Government data showed that nearly 11 percent of workers without a high school diploma were unemployed last month compared with 4 percent of college graduates.
  • “The job market is actually narrowing,” said John Silvia, chief economist at Wells Fargo. “There’s a smaller group of people working, but they are prospering.”
  • More people are voluntarily leaving their jobs for lateral positions — a characteristic of a healthy labor market.
  • There were surprising strengths in the private sector. Retailers added 44,000 jobs last month, many of them at bars and restaurants. The hospital sector hired a net 53,000 workers, while the manufacturing industry gained 19,000 jobs.

With all the uncertainty in the economy, it becomes challenging to predict the future. That's why we continue to believe in our strategy of preparing for multiple possible outcomes. Diversifying into non-correlated assets has helped us achieve that objective.

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