Fisher Investments Editorial Staff
US Economy

Less Bad Is Good

By, 09/07/2009

Story Highlights:

  • Employment data released Friday revealed fewer job losses than expected, but the unemployment rate hit a 23-year high of 9.7%.
  • Even though the pace of job losses is slowing, some observers note this "less bad" data still isn't good.
  • Similarly, other economic measures are showing improvement of note.
  • Investors expecting the economy to move immediately from "bad" to "good" will be disappointed, but "less bad" is a necessary and welcome step.


 As the economy sputters to life and economic data continue to exceed dour expectations, some skeptics are acknowledging things are "less bad" than anticipated. But they may also point out "less bad isn't good." Vice President Biden echoed this  referring to news Friday that the US unemployment rate reached a 23-year high of 9.7%. Yet, investors were a bit less gloomy about the news than the VP, bidding up US and global stocks by 1.3% and 1.0%, respectively.

Instead, investors were encouraged by fewer job losses than expected—216,000 jobs shed versus the expected 250,000. Although 216,000 jobs lost isn't normally cause for celebration, it's far better than the 670,000 jobs lost on average per month from November 2008 through March 2009. In fact, August had the slowest job loss pace since last August—before the onset of the financial panic.

While investors cheered the less-bad news, skeptics claim unemployment data doesn't capture the recession's "true" impact, citing various measures of "labor underutilization." The Bureau of Labor Statistics (BLS) has six categories of labor under-utilization:

  • U-1: Persons unemployed 15 weeks or longer (currently 5.1%)
  • U-2: Job losers and persons who completed temporary jobs (currently 6.4%)
  • U-3: Total unemployed (official unemployment rate; currently 9.7%)
  • U-4: Total unemployed plus discouraged workers (currently 10.1%)
  • U-5: Total unemployed, plus discouraged workers, plus all other marginally attached workers (currently 11.0%)
  • U-6: Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons (currently 16.8%)

The U-3 figure is the official unemployment rate, but it leaves out workers who've stopped looking for jobs (discouraged) and folks in part-time positions who'd prefer to be full time. (Though how they measure this is a bit woolly. After all, there are likely always temporary workers who'd prefer full-time gigs.)  These "disenfranchised" folks are captured in the U-6 number.  Yes, this number is a lot higher and is frequently the basis for headlines that say, "Unofficially, unemployment is much higher!" But workers become disenfranchised during all economic downturns, so the increase in this figure probably isn't far different than the increase we've seen in the official unemployment rate. Unfortunately, U-6 data only goes back to 1994, making extensive historical comparisons impossible.

We've said repeatedly the stock market will likely recover long before employment does, and this has certainly been the case since March. And unemployment isn't the only "less bad" economic measure helping boost stocks. Retail sales have been looking up, factory orders are rising, manufacturing is improving, productivity is increasing—all positive signs. Those expecting the economy to go straight from "bad" to "good" are due to be disappointed. The economy just doesn't work that way. Things need to get "less bad" first and, from an investor's standpoint, less bad is good.

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.


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