How the Lowest Unemployment Rate in 50 Years Affects Investors
After over a decade of steady growth, it's not unusual for the economy to be slowing. Throw in a mix of global issues such as trade wars and central bank activity, and it's no surprise that markets have been choppy over the past year. While there may continue to be market uncertainty, it's more important than ever for long-term investors to maintain perspective on how far both the economy and stock market have come since 2008.
How far have we come exactly? Traditionally, one of the most important measures of the health of the economy is the unemployment rate. It captures how well everyday people are doing and, on the flip side, whether companies are hiring and expanding. While there is clearly a human and personal aspect to jobs and hiring that these data don't capture, they do provide important information to investors and economists.
In particular, the unemployment rate last month hit 3.5% - the lowest since December 1969, nearly 50 years ago. During the dot-com era, unemployment "only" fell as low as 3.8%.
Company payrolls tell the same story. For many years investors and economists grew accustomed to the economy adding over 200,000 jobs per month. And while this rate has slowed, the economy has still been adding an average of 179,000 jobs per month over the past year. This is a very healthy number no matter how you slice it.
Additionally, the number of unfilled positions is still near historic highs - suggesting that companies would like to hire if they could find qualified workers - while the number of workers filing for initial jobless claims is also at a 50-year low.
Of course, no single set of economic numbers tells the whole story, and not every measure has been rosy. In particular, this time is certainly different in that many workers gave up after 2008. This is reflected in measures such as the "under-employment" rate, which incorporates many of those who have given up on finding jobs. It's also reflected in the labor force participation rate which has been falling since the early 2000s.
However, even those measures have improved over the past ten years. In particular, the under-employment rate is now at 6.9%, having come down from over 17% almost ten years ago. This suggests that, while the situation is far from perfect, even many of those who had given up have found work.
Thus, although the economy is slowing, especially in areas hit by trade tensions, it is still fundamentally healthy. Thus, at a time when there are still attractive opportunities in the market, it's more important than ever for investors to stay balanced in their portfolios, despite the daily headlines.