Last Friday the Bureau of Labor Statistics announced that in
September, the U.S. unemployment rate dropped below 8 percent for
the first time since 2009, falling to 7.8 percent. Obviously, any
progress in reducing unemployment is good news, but a closer look
at the employment picture shows that this recent improvement is far
from an overwhelming success.
A closer look
Here are some notes on how good September's employment report
really was, and what effect if might have on the election and the
economy.
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Is 7.8 percent good?
While this is the lowest unemployment has been in over
three-and-a-half years, from a historical perspective 7.8 percent
is still high unemployment. Over the last 50 years, unemployment
has averaged 6.1 percent. In that 50 years, there have really
only been two previous periods where unemployment was 7.8 percent
or higher for several months: the mid-1970s and the early
1980s.
-
Is employment gaining momentum?
The drop in the unemployment rate was helped by revisions to
prior estimates and other technical adjustments. Employers only
created a net total of 114,000 new jobs in September, which is
not a strong number. The average monthly gain in 2012 has been
146,000 new jobs, and for 2011 it was 153,000.
-
Will this affect the election?
The unemployment rate is now right where it was when Barack Obama
took office, so at best this latest drop in unemployment may have
neutralized the jobs issue rather than made it a positive for
Obama. Over the past 50 years, the only two incumbents with
unemployment rates of 7.5 percent or higher this late in their
re-election campaigns were Gerald Ford and Jimmy Carter -- and
neither one fared too well.
-
Will this change Fed policy?
Improving employment has been a big goal of the Fed's aggressive
interest rate policies, and it's doubtful that this one report
will give them enough confidence to back off of those policies.
In the near-term, a spike in inflation is more likely to get the
Fed to change course than improvement in unemployment.
-
Will this help savings accounts?
CD, savings and money market rates have been among the victims of
the weak economy, so will strength in employment help rates rise?
Not immediately. For
savings accounts and other deposits
, you'd have to look at this as just a very small step in the
right direction. Only when a positive employment trend has been
sustained enough to improve the lending environment will most
banks step up to the plate with higher rates on savings
accounts.
Although round numbers like 8 percent become
psychological barriers in finance
and economics, the 0.3 percent improvement that drove the
unemployment rate below 8.0 percent is probably not substantial
enough to have much of a ripple effect, either on the economy or
the election. However, if followed up by a similarly strong gain in
October, the momentum could be significant. To add a bit of drama,
that next unemployment report will come out just four days before
the election.