The current unemployment rate is 5.5%. Historically, that’s not a high number. Why all the concern?

The present unemployment rate is historically low. During the past 25 years the unemployment rate has ranged from a high of 9.7% to a low of 4%. It would appear that 5.5% is on the low end. That said, before assuming 5.5% is good news, there are four factors which need to be taken into consideration.

1. Unemployment is a lagging indicator. People are let go from their jobs when business has declined, not before it declines. If business continues to decline, then we will see higher unemployment rates.

2. The unemployment rate is published by the Bureau of Labor Statistics, which is part of the U.S. Department of Labor. The government defines unemployed as people who are jobless, looking for jobs, and available for work. That would include those collecting unemployment insurance. At the same time there are a number of persons who no longer collect unemployment insurance and have simply given up looking for work. The Bureau of Labor Statistics no longer counts them and they fall into the category “Not in the labor force.” Currently, that number totals over 79 million persons. Many within that number are correctly not a part of the work force, but the remainder, if identified, would increase the unemployment rate.

3. The length of time for the unemployed to find a job is taking longer. Recently, unemployment claims lasting more than one week hit a 4½ year high.

4. What is the trend? During the past two years, the unemployment rate has moved steadily from a low of 4.5% to the current 5.5%.

Given these four factors, it would certainly be prudent to use the unemployment rate as a cautionary tool in guiding your investment strategy.