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The unemployment situation in June 2012 remained largely the same in terms of the unemployment rate remaining steady at 8.2% (12.7 million people unemployed).

However, with the real unemployment rate at 9.8%, the risky asset classes reacted negatively to the jobs report.

The Real Job Scenario -

Consider the following from the latest BLS employment situation release:

In June, 2.5 million persons were marginally attached to the labor force, down from 2.7 million a year earlier. (These data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.

In my opinion, these 2.5 million people need to be added in order to get the real unemployment rate. In doing that, the unemployment rate comes at 9.8%.

Consider another statement from the BLS employment situation release:

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was essentially unchanged at 8.2 million. These individuals were working part time because their hours had been cut back or because they were unable to find a full time job.

Therefore, for June 2012, 8.2 million workers were employed part-time due to economic reasons. If we add these workers to the unemployment rate, the percentage would surge to 15.1% (something close to the latest U6 number reported by the FRED).

click to enlarge image

U6 Rate for June 2012

Surely being part-time employed is not equal to unemployed (as one would argue). However, I am looking at it from the perspective of being part-time employed due to economic reasons and due to unavailability of full time jobs.

Expected Policy Action -

I had discussed the prospects of a global recession in one of my recent articles. That fear, coupled with weak jobs report, is likely to trigger another round of quantitative easing by the policymakers. I personally expect global economic scenario to worsen in this quarter and the next. Therefore, I would not be surprised to see some more easing action by U.S. and European Central Banks.

My biggest concern is the type of policy action and its impact on the jobs market. The policy actions since the 2008-09 recession have largely aided the banks in rebuilding their balance sheets. They might have (to some extent) helped in boosting consumption temporarily. However, I doubt the impact of QE measures on the jobs market. The above data on unemployment (U6) tells us the real story.

However, I doubt that policymakers would really do something different to boost the jobs situation. As such, the policy action can help in lowering bond yields and boost consumption through some extraordinary measures. The biggest beneficiary would be risky asset classes and emerging markets (not necessarily India and China). Policymakers do have some control over the amount of money they pump in the financial system. However, they exercise no control over the allocation of these funds.

Investment Strategy -

It would be best to avoid fresh equity exposure in the short-term. However, if markets do correct by 10-15% from these levels, exposure to the index and quality stocks would be a good idea. I had mentioned about Johnson & Johnson (NYSE: JNJ), Exxon Mobil (NYSE: XOM) and Microsoft Corporation (MSFT) as good buys in one of my previous articles. Besides this, investors can also consider exposure to the index through iShares S&P 500 Index ETF (NYSEARCA: IVV).

It is also a good idea to accumulate gold on corrections. As the dollar strengthens, I expect gold to correct further before surging on further QE. Accumulating physical gold is best. However, investors can also invest through the SPDR Gold Trust ETF (GLD).

Source: Real Unemployment Rate At 9.8%: Avoid Risky Asset Classes