Signup for our free newsletter:

Unemployment is Really 8.6%

Written By Brian Hicks

Posted August 23, 2013

People have been talking about how the U.S. economy has been improving for the last couple of months, but has it really been moving forward as well as everyone is led to believe? The answer to this may surprise you.

Gallup recently reported on poll findings concerning the unemployment rate in the United States for August. The organization called 30,000 Americans to find out who was underemployed, unemployed, employed full-time, or part-time. All of the people it spoke to were at least 18 years old.

unemployment line wsrFrom its poll, Gallup came up with an August prediction of an 8.6 percent unemployment rate.

Shocked? You should be if you’ve been following the government’s joblessness rate of 7.4 percent.

So is someone lying? It’s not likely. The problem is, Gallup doesn’t seasonally adjust its results and the government does, which can result in a huge discrepancy.

Jacob Oubina, senior economist at RBC Capital Markets, told CNBC:

The BLS method is statistically more rigorous. With the Gallup, you’re basically doing a poll. The Gallup is more of a sentiment-type indicator.

The reason many people often consider Gallup a reputable source for unemployment information is that lately, it has been following the numbers from the Bureau of Labor Statistics. It’s just that now they are seeing something a bit different.

How the Federal Reserve Responds to Unemployment

The figures the Gallup poll found may be having some effect on the Federal Reserve’s decision concerning a possible tapering of its $85 billion in asset purchases. This quantitative easing program has been talked about a lot this week, as the Federal Reserve released minutes indicating that it may begin tapering in September, though it’s still not set in stone.

Could the Federal Reserve be using Gallup results in its decision on when to taper?

It’s possible the Fed is looking at the numbers, though it will base its decision on more figures from the Bureau of Labor Statistics. Still, the Fed plans to taper funding when the unemployment hits a low level, and if Gallup’s projected rate increase this month proves accurate, we may not see tapering after all.

Are We In for a Recession?

There are concerns that another recession may be on the horizon. With fewer people working, there are fewer people spending money. This can lead to quite a financial crisis.

The Fed is mulling over this carefully because if the unemployment rate doesn’t go down, the economy cannot improve, and tapering would further stifle economic improvement.

The other problem with this situation is that many people who are working still aren’t making living wages. CNBC reports median income in June was $52,098 – 4.4 percent less than when the recession ended 4 years prior.

When the recession hit in 2007, median household income was $55,480, so as you can see, Americans are making a lot less now than they did before the recession. That doesn’t sound good at all.

Where to Invest

With Americans not making as much money as they should in an improving economy, you are probably wondering what this means for your investments. Here are some suggestions going forward:

  • Companies with market values of $20 billion or more can be good for your portfolio. These companies are usually exposed to global economies. Look out for energy, manufacturing, and raw material companies that are performing well and have projects on the horizon.

  • Seek the MSCI Emerging Markets Index for information on investing in emerging markets. While these are not good for short-term investments, they often lead to a high yield in the long term. But be careful – emerging markets are cheap right now.

  • U.S. Treasuries aren’t the best investment right now, but don’t avoid them completely. Having some investment in municipal bonds can be a good way to diversify your portfolio and compensate for downturns in the stock market. But as always, do your due diligence.

  • Tangible assets are a safe haven in times like these, so look towards commodities and real estate.

By diversifying your portfolio with the above investments, you’ll be able to put yourself in a good position no matter what happens to the economy. Continue to stay informed on what is happening with unemployment, median income levels, and the Fed’s decision on tapering.


If you liked this article, you may also enjoy: