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When Low Unemployment Can Be Bad News

July 24, 2017

We’re at or near full employment – or so the statistics say.


Full employment generally means almost everyone who wants a job can get one, and the primary constraint on growth is the amount of labor available. Plentiful, abundant jobs with growing companies? I don’t think that is most folks’ reality. More likely, if they’re not unemployed, they’re under-employed. Consider workers who have been downsized. They’re working, but it’s at less than full-time and full pay.


Too bad their mortgages and bills weren’t downsized accordingly. Sure, their lives were flipped upside down, but since they’re still working, they count as employed in the statistics.
It’s even worse for the retail, travel and restaurant industries. These workers often have to work multiple jobs to make ends meet. Well, you can’t work 24-hours-per-day or be in two places at once. They’re fully employed, but not fully happy I would suspect.


So, if we’re at full employment, that’s not a good thing, because the above situations are more common than we know. 

 

The Federal Reserve thinks we’re doing great though, based on the decision to raise interest rates. Any resulting inflation would be a painful double whammy, because income stagnation is real (most people can’t afford an average new car on an average salary).


If prices rise but wages don’t, people in the middle will get pushed out. That means less home ownership, vehicle purchases, and so on. We have visibility into employment statistics. And the same is true for income statistics. But we rarely see how the two interact. I think if we could, it would reveal a stagnant or worsening reality for many people, not some rosy ideal.


Raising rates in such an environment could be risky for growth because today clearly proves that “full employment” can coexist with unhappiness.
 

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This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. Please consult with a professional specializing in these areas regarding the applicability of this information to your situation.

Andrew Wood, Dan Simon and Alison Slezak are Investment Advisor Representatives. Advisory services are offered through CoreCap Advisors, LLC., a Registered Investment Advisor. CoreCap Advisors, LLC and Daniel A. White & Associates, LLC are separate & unaffiliated entities. 

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