Mon 3/26/12 4:13 PM – Bernanke Comments Push Stocks Up, True Unemployment Picture

Ben Bernanke said early today that the US economy badly needed growth in order to get the current high unemployment rate down. Markets took that as a sign he would be very accomodative and might even do a third round of quantitative easing. If you remember my comments, QEI and QEII did a lot to spark higher prices on stocks and commodities but really not much to spark the economy or employment. As a side effect it created inflation in many of the emerging markets, but oh well, its the US that he cares about or is made to care about.

According to an article on Pg. A2 of today’s WSJ, the unemployment picture is not quite as good as it seems, which I have written about here several times and also in my monthly newsletter. Here is the chart the article featured. Click on the chart to enlarge it.
According to the article, the average unemployed person has been unemployed longer than 40 weeks – that’s almost 3 1/2 years! As the chart shows, their unemployment rate has only dropped a measly half percent. Even more telling, look at the bottom chart, one I have displayed before. The percentage of the population that is working is only 58.6% and that rate is hardly changed over the last three years of supposed improvement in unemployment.

The answer is that the unemployment rate is flawed because it only counts people as part of the available work force if they are actively seeking a job. Many people took involuntary early retirement or work part time or went back to school or just plain gave up looking. Leaving them out shrinks the available work force and with the same number of people working, presto! – you have a drop in the unemployment rate. How politically convenient but very misleading.

In any case, stocks in the US were up over 1% and the early hour of Bernanke’s comments pushed what had been flat European markets up nearly as much. Gold was up nearly 2% (inflation fears on possible Fed QEIII), oil and bonds were up slightly.