If there is one aspect of the “recovery” that is most disheartening it is the current U.S. unemployment situation. On January 8th the change in nonfarm payrolls for December came in at a weak -85,000 versus an estimate of no change. Between 1999 and 2009 the population grew by 30M people, but the economy produced only 400,000 jobs. Not only do Americans continue to lose jobs, but those who find themselves unemployed seem to stay that way.
Over 6 million Americans have been unemployed for 27 weeks or more and there are nearly 6 unemployed workers for every job opening. The labor weakness will definitely keep wages in check into the foreseeable future, a fact that should help keep inflation muted despite massive fiscal stimulus.
From a market and trading perspective, the continued weakness in employment helps us forecast the federal reserve’s future decisions. High unemployment rates are very political and there will be tremendous pressure for the Fed to keep short-term interest rates as low as possible as long as possible in an attempt to fuel an employment rebound. The Fed will err on the side of inflation and only start to raise interest rates after there is a significant sign of inflation gearing up. My only concern is that the Fed’s actions will not be enough to satisfy congressional desires to make their constituents happy. “Stimulus” packages seem to make the public angry because the last round of stimulus was never really felt by the average American, so the only options left would be protectionist in nature. If unemployment continues to be weak, I could likely see new tariffs against foreign goods and laws to protect domestic corporations. We all know that the government missed the class on unintended consequences, so let us hope that my fear is unwarranted. The last thing this country needs is a global trade war.