Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Why Unemployment Rates Matter to Your Retirement

Personal_Finance / Pensions & Retirement Mar 13, 2014 - 07:18 PM GMT

By: Don_Miller

Personal_Finance

My biological clock is ticking—as is yours and everyone else's. With each passing day, you are either moving closer to or further past the day you quit working full time. Baby boomers are retiring at a rate of 10,000 per day and will continue to do so for the next 17 years. Whether you count yourself among that group or not, understanding where economic data—such as unemployment rates and inflation—come from will make you a better investor and savvier retiree.


The Federal Reserve has some laudable goals. Its current mission includes inflation control and employment promotion, and it uses data from the Bureau of Labor Statistics (BLS) and the Departments of Labor and Commerce to formulate policy. Investors look at those same numbers, try to anticipate what the Federal Reserve might do, and invest accordingly.

On unemployment, the Fed notes:

"(I)n the most recent projections, FOMC participants' estimates of the longer-run normal rate of unemployment had a central tendency of 5.2 percent to 5.8 percent. Though a variety of factors influence the level of unemployment in the economy, the Federal Reserve makes monetary policy decisions that aim to foster the lowest level of unemployment that is consistent with stable prices."

And on inflation:

"The Federal Open Market Committee (FOMC) judges that inflation at the rate of 2 percent (as measured by the annual change in the price index for personal consumption expenditures, or PCE) is most consistent over the longer run with the Federal Reserve's mandate for price stability and maximum employment. … The FOMC implements monetary policy to help maintain an inflation rate of 2 percent over the medium term."

And here is how the Fed evaluates inflation when making policy decisions:

"(P)olicymakers examine a variety of 'core' inflation measures to help identify inflation trends. The most common type of core inflation measures excludes items that tend to go up and down in price dramatically or often, like food and energy items. … Although food and energy make up an important part of the budget for most households—and policymakers ultimately seek to stabilize overall consumer prices—core inflation measures that leave out items with volatile prices can be useful in assessing inflation trends."

Hmm. There are many fallacies in that approach. Sometimes the premise or data is incorrect. Many times the Fed has made predictions that were totally incorrect and then had to jump in to try to clean up the mess when unforeseen bubbles have burst.

Debunking the statistics. The graph below shows the official BLS unemployment statistics. In December 2004 the unemployment rate was 5.4%. Since then it has gone from a low of 4.4% to a high of 10% in October 2009. The current reported rate is 6.7%.

The Federal Reserve committed to holding interest rates down until the official unemployment rate hit 6.5%. Mike Meyer, vice president at EverBank, weighed in via the Daily Pfennig:

"Based on this official number, the job market is getting a lot better. There's only one big problem: the official number doesn't really reflect the health of the labor market.

That probably explains why the Fed has moved away from the 6.5% target. Last November, former Fed chief Ben Bernanke said that short-term interest rates might stay near zero 'well after' the jobless rate falls below 6.5%. ... It seems even the Fed has realized the official unemployment rate is flawed."

Meyer also notes that many believe the reason unemployment numbers are dropping is because baby boomers are now rapidly retiring; however, the number of workers over age 55 has actually increased over the last five years.

The key to understanding unemployment rates is the Labor Force Participation Rate—meaning the percentage of the population that's employed. When the BLS calculates the unemployment rate, it doesn't consider a person whose unemployment benefits have run out and is no longer looking for a job to be unemployed. I guess that means if everyone quit looking for a job, the unemployment rate would be zero?

Meyers went on to write:

"The drop in the number of people who are looking for a job has helped bring the unemployment rate down. In fact, some economists estimate that if the LFPR was at the same level where it was before the recession (66.4% in January 2007), the unemployment rate would be 11.75%."

Other think tanks like Shadow Government Statistics publish their own unemployment statistics:

"The decline in the headline U.3 unemployment rate, from 7.0% to 6.7%, was not good news. The large drop in the number of unemployed mostly reflected people becoming 'discouraged' and being statistically removed from the headline labor force, instead of finding jobs and returning to work. The increasing flow of discouraged workers through the broader U.6 measure, into the ShadowStats-Alternate Unemployment measure, boosted the ShadowStats unemployment rate to 23.3% from a revised 23.1%."

We know the Federal Reserve was committed to holding interest rates low until the official unemployment rate dropped to 6.5%. That would tend to indicate people were back at work, the economy was improving, and the market could absorb higher interest rates without putting us back into a recession. Now the Fed has backed off on that commitment and is signaling it will hold interest rates down well after unemployment falls below 6.5%.

What difference does it make? For those who are investing their life savings—which they can ill afford to lose—it makes a lot of difference. There's no point in arguing about whether unemployment is 6.7% or 23.3% or anywhere in between. What matters is how those numbers affect our investments decisions—and the decisions of others.

If the economy is doing well, that means companies are hiring and profits are increasing. It's a good time to be heavily invested in the stock market. If the economy is not thriving and people are not working, then businesses will suffer, and many will fold. Retirees can ill afford to put a major portion of their nest eggs into the market based on a false premise. The risk is much too great.

How many of our favorite restaurants have shut down since the 2008 crash? In a down economy, business suffers and so do investors—eventually. The Federal Reserve, with its various stimulus programs, is just kicking the can down the road.

If data from the government or the private sector are unreliable—or suspected of being so—we're investing in the unknown. Investors will move cautiously and spend less freely because they're worried about an uncertain future.

What about inflation? The Federal Reserve has deemed a 2% inflation rate good for the economy. Inflation is a hidden tax that hurts seniors and savers immensely. If you invest in a Treasury bond paying 2% and inflation is 3%, when your bond matures you have more money in the bank but less buying power. Keep it up and you can kiss your lifestyle goodbye a lot quicker than most folks realize. Go to any potluck dinner in a 55-plus community and you will hear folks complaining about how expensive things are getting.

The Consumer Price Index is used to calculate inflation. Many people think the CPI is based on a constant basket of commonly purchased goods, with the current prices adjusted from year to year. That is inaccurate; the BLS has changed its formula many times.

Why does that matter? For one, the CPI is the basis for Social Security increases every year. Many Social Security recipients have noticed their Medicare premiums increase faster than their Social Security checks. The government has a great financial incentive to keep the official CPI number as low as possible: the lower the number, the less it has to pay.

The Federal Reserve uses many measures to calculate the impact of inflation; they just happen to exclude food and fuel, for example. That makes it hard for investors who happen to eat and drive to grasp the relevance of the numbers.

This is damn important for investors! Why? Interest rates rise during times of high inflation, which dramatically impacts the yield on government-backed securities and top-quality bonds. It's because of inflation—and inflation fears—that savvy investors have backed off from safe, fixed-income investments. Right now, they're a surefire way to make sure your money does not last forever.

The Fed's zero-interest-rate policy (ZIRP) means that if you invest in US Treasuries, you will likely lose ground to inflation. That's good for the government and bad for investors.

The BLS website has a handy inflation calculator. Most people are told to plan for 30 years of retirement. If you retire at age 65, make sure you have enough to make it to 95—and probably much longer.

According to the BLS calculator, something that cost $10,000 in 1983 will now cost $23,389.26. That presents quite an investment challenge—considering the Federal Reserve has been printing a trillion dollars a year for the last several years. Who knows what the inflation calculator will look like 30 years from now?

The market is currently trading in anticipation of what the Federal Reserve is doing (called "sentiment") as opposed to the true growth of the economy and success of the individual businesses (called "fundamentals"). That, coupled with a great level of distrust in our government, our currency, and the role of the Federal Reserve, affects each and every investment we make.

In the meantime, the biological clocks of baby boomers continue to tick. The headline numbers for unemployment and inflation are for the benefit of the politicians, not investors. That's why we're dedicated to showing investors how to safely invest in today's market. We have no choice but to put our money into investments that are riskier than the previous generation did. Still, there are safety belts available to minimize risk.

An educated investor who reads more than the headlines, understands what is really going on, and does not invest emotionally can still enjoy retirement.

Our Bulletproof Income strategy is designed to give conservative investors the best possible returns with minimal risk. Our Bulletproof Income portfolio is designed to provide safe income—well ahead of inflation—with good diversification and safety belts to protect you and your money. If you haven't done so, I would urge you to sign up for a no-risk subscription ($99/year). Sign up and receive a copy of my book, Retirement Reboot, all of our special reports, and our monthly issues. If you decide we're not for you, cancel within the first 90 days and receive a full refund, no questions asked. Feel free to keep the material you've downloaded as our thank you for taking the time to look us over. Click here to learn more and get started today.

The article Why Unemployment Rates Matter to Your Retirement was originally published at millersmoney.com.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Casey Research Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in