Unemployment May Not Be Getting Better

I have been expecting a better recovery than the consensus (“every W starts as a V”) and with it improvement in unemployment, at least until we go back down in a double dip (if we do so). While the official rate is that we peaked in October and have improved since, a look at unemployment claims suggests that we have been flat since October and possibly slowly worsening:

For investors, this is an important issue: if we peaked last October and have been improving (slowly) since, it raises the odds of the Fed normalizing rates in Q4. The consensus view is probably captured by recent statements by Geithner, who expects a flat unemployment rate for a while (as census workers come in and leave the rolls) and then a steady decline. The analysis above suggest that the “New Projection” may turn out to be as optimistic as were the original projections, with and without stimulus, also in this chart:

In California, hiring is picking up in Silicon Valley, but the State’s overall unemployment rate has increased to 12.6% and the “underemployment rate” (U6) is approaching 24%. The recovery such as it is remains highly uneven. We should not be surprised that areas with high value-added jobs improves, but overall the situation is still tenuous at best.

After the March unemployment report, Obama gushed about how substantial the improvement was and opined: “we are beginning to turn the corner.” Politicians will of course jump the gun, but investors need to be more circumspect.

The WSJ noted how large the margin of error in these reports can be:

The ranks of unemployed individuals grew by 134,000 last month From February to 15 million, the Department of Labor’s Bureau of Labor Statistics says. But it is also plausible, the agency says, that the number of unemployed rose by 500,000. Or, it could have fallen by 200,000. …

In other words, it isn’t even clear whether the number of unemployed rose or fell last month.

Art Cashin of UBS then gave us the last word:

Wow! To think that markets react to these numbers as though they were truly meaningful.

About Duncan Davidson 228 Articles

Affiliation: NetService Ventures

Duncan is an advisor to NetService Ventures, where he focuses on digital media and the mobile Internet.

Previously he was at four start-ups: Xumii, a mobile social service based on a Social Addressbook; SkyPilot Networks, the performance leader of wireless mesh systems for last-mile access, where he was the founding CEO; Covad Communications (Amex: DVW, $9B market cap at the peak), the leading independent DSL access provider, where he was the founding Chairman; InterTrust Technologies ($9B market cap at the peak), the pioneer in digital rights management technologies, now owned by Sony and Philips, where he was SVP Business Development and the pitchman for the IPO.

Before these ventures, Duncan was a partner at Cambridge Venture Partners, an early-stage venture firm, and managing partner of Gemini McKenna, a joint venture between Regis McKenna's marketing firm and Gemini Consulting, the global management consulting arm of Cap Gemini.

He serves on the board or is an adviser to Aggregate Knowledge (content discovery), Livescribe (digital pen), AllVoices (citizen journalism), Xumii (mobile social addressbook), Verismo (Internet settop box), and Widevine (DRM for IPTV).

Visit: Duncan Davidson's Blogs

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