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Khari Parker
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A stock investor who specializes in analyzing Technology based stocks as well as corporate Business Process Outsourcing (BPO) and Management Consulting.
  • Why The News On The Job Market Does Not Tell The Whole Story

    If you are anything like me, when you tuned in to your favorite news outlet this morning and saw that, "[Our] economy created 146,000 new jobs and the unemployment rate slid to 7.7 percent" your first thoughts were either "Wow!", "That's Awesome!" or "Un-Freakin-believable!". After scanning through a few forums and talking with a few finance buffs, I realized that I was not the only one who was shocked at this major improvement in the number of jobs added and the drop in the unemployment rate.

    Let's focus in on the 7.7% drop in unemployment. The chart below, which was provided by the Bureau of Labor Statistics, shows the unemployment rate for the past 10 years. A quick glance at this chart shows that the current U.S. unemployment rate of 7.7% is at the lowest levels since December 2008. While some may think that this lower rate is forecasting a change in the current economic climate, I think we need to examine the story, behind this latest news story.

     

     

    Year

    Jan

    Feb

    Mar

    Apr

    May

    Jun

    Jul

    Aug

    Sep

    Oct

    Nov

    Dec

    2002

    5.7

    5.7

    5.7

    5.9

    5.8

    5.8

    5.8

    5.7

    5.7

    5.7

    5.9

    6.0

    2003

    5.8

    5.9

    5.9

    6.0

    6.1

    6.3

    6.2

    6.1

    6.1

    6.0

    5.8

    5.7

    2004

    5.7

    5.6

    5.8

    5.6

    5.6

    5.6

    5.5

    5.4

    5.4

    5.5

    5.4

    5.4

    2005

    5.3

    5.4

    5.2

    5.2

    5.1

    5.0

    5.0

    4.9

    5.0

    5.0

    5.0

    4.9

    2006

    4.7

    4.8

    4.7

    4.7

    4.6

    4.6

    4.7

    4.7

    4.5

    4.4

    4.5

    4.4

    2007

    4.6

    4.5

    4.4

    4.5

    4.4

    4.6

    4.7

    4.6

    4.7

    4.7

    4.7

    5.0

    2008

    5.0

    4.9

    5.1

    5.0

    5.4

    5.6

    5.8

    6.1

    6.1

    6.5

    6.8

    7.3

    2009

    7.8

    8.3

    8.7

    8.9

    9.4

    9.5

    9.5

    9.6

    9.8

    10.0

    9.9

    9.9

    2010

    9.7

    9.8

    9.8

    9.9

    9.6

    9.4

    9.5

    9.6

    9.5

    9.5

    9.8

    9.4

    2011

    9.1

    9.0

    8.9

    9.0

    9.0

    9.1

    9.1

    9.1

    9.0

    8.9

    8.7

    8.5

    2012

    8.3

    8.3

    8.2

    8.1

    8.2

    8.2

    8.3

    8.1

    7.8

    7.9

    7.7

     

    Whenever I hear a reference to the amount of people who are unemployed in the U.S., I cannot help but to wonder how many people are working undocumented jobs, how many people gave up hope and are no longer searching for jobs or how many people fall into both of these categories. After speaking with others, I have found that many people share similar thoughts. What I have come to realize is that in analyzing our job market, for the most part, it really does not matter how many workers are working undocumented jobs or even how many have stopped searching. I know that's a strong statement, but let me tell you why this is the case.

    Let's start with how the government calculates the number of unemployed people here in the U.S. An amazing amount of people (I was one of them) believe that the government gathers these numbers from our local unemployment offices. That would make sense, being that it would give a somewhat accurate count on the number of individuals who have come forth and indicated that they are without employment. However, this is not the case. As the Bureau of Labor Statistics (BLS) explains, "…the Government conducts a monthly sample survey called the Current Population Survey (NYSE:CPS) to measure the extent of unemployment in [our] country." Given that a true count is not taken, rather we are dealing with a sample set, I have the feeling that several mathematicians are reading this article and would like to know the margin of error in this sample. The BLS further reports that, "[there is a 90% chance] that the monthly estimate of unemployment from the sample is within about 290,000 of the figure obtainable from a total census." Now am I the only one who thinks that we need to "back this bus up"? Alright, so let's back track and analyze. If our margin of error stands at plus or minus 290,000 people (of which we assume will each occupy only one job) who can be included or excluded from the total unemployment count, then that totally negates the fact that 146,000 new jobs have been created and makes this figure somewhat of a worthless indicator of the present state of our job market and thus provides little value to someone who is attempting to determine the present state of our economy. I believe it provides "little value" in that a positive or negative trend in these unemployment figures will give us a general idea of whether the economy is moving in a particular direction. However, I believe that given the high margin of error from the samples taken, the only time we can benefit significantly from these numbers are if they are historically high (10% unemployment or more) or historically low (4% unemployment or less).

    Ultimately, does it really matter if the reported unemployment rate does not reflect the true amount of Americans that are unemployed? We know that news on the unemployment rate certainly affects the value of our stocks; however, is it really a valuable statistic to gauge the present state of our economy? Next time you see the news and the job report is released and indicates that your favorite companies such as Apple (NASDAQ:AAPL) or Facebook (NASDAQ:FB) have added jobs to the economy, remember that: There is a story, behind the story.

    Disclosure: I am long AAPL, FB.

    Dec 07 1:32 PM | Link | Comment!
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