Two Job Markets

We have written in the past about U-6, which in addition to being a very large shrimp (it’s a code that means 6 shrimp to a pound), is one of the government’s measures of unemployment. Specifically, it includes not only the traditional definition of unemployed (which the government calls U-3) but also those who are working but “under-employed." These may be people who are working multiple jobs, taking jobs that are below their level of experience, or those who have been unemployed for a long time. None of these people are included in the “headline” employment figures you hear about on TV. But they are included in U-6, and we think the percentage of these folks as part of the total labor force is a very important number to watch. After all, an economy can only go so far if the U-3 people gain employment, but the U-6’s remain “discouraged.”

We went back to analyze what we’d call the “underemployed gap” – the difference between U-6 and U-3. That gap is currently 5.4%, placing it in its highest 1/3 since the government started tracking U-6 back in January, 1994. So America, we have a problem. Consider this:

• U-6 just now returning to the level which was its record high before the 2008 financial crisis brought it to an astonishing 17%. Good news, but the fact that it took seven years is another reminder that this is a long and slow recovery. That’s fine, but our concern is the recovery in the stock market and continued low interest rates around the world are too far, too fast.

• U-6 is declining, but is still at a level which we would consider unhealthy, and not consistent with a “recovered” economy.

• Like so many economic and stock market indicators we follow, the “underemployed gap” is improved, may have room to improve more, but is likely in the latter stages of its own “bull market.” We are watching it closely.

© Sungarden Investment Research

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