What to Make of the 3.5% U.S. Jobless Rate

The U.S. jobless rate remains at a 50-year low (Yahoo Finance, Jan. 10).

Jobs report: U.S. economy adds 145,000 jobs in December, unemployment rate holds at 3.5%

Some investors believe that such a historically low U.S. unemployment rate is a positive portent for the economy and the stock market.

Yet, Elliott Wave International's analysts explain why those who hold such a view might want to re-consider.

Here's an excerpt from the January Elliott Wave Financial Forecast, which published before the December jobless figure was released. However, as you'll see, the mentioned November jobless figure was the same as December's:

Back in June, the Elliott Wave Financial Forecast referenced President Donald Trump's assertion that the U.S. economy is "the best in the history of our country, in some cases 51 years." The claim was based in part on the lowest unemployment levels since 1968. With unemployment continuing lower through November, many others now echo the president with praise for "the best economy in 50 years." The November figure for U.S. unemployment, the latest monthly reading, is 3.5%, just one tick above the December 1968 low of 3.4%. If the economy continues to expand, as it usually does in the wake of a significant stock peak, the unemployment rate may slip to new lows. But don't be fooled by stories of record low unemployment. It is worth noting, for instance, that the December 1968 low accompanied a major top in stock prices and the beginning of a long march to double-digit unemployment levels. In fact, the rise in unemployment did not end until it hit 10.67% in December 1982... That was the very time the latest boom times really began, even as unemployment hit its highest level since the 1930s. Always keep in mind, economic measures are lagging indicators, measuring what happened last month, last quarter or even last year.

If the economy is the best in 50 years, why did so many economists suggest it was slowing through the first 10 months of 2019? Probably because it was: Real GDP growth was 3.1% in the first quarter of 2019 and contracted to 2.1% in the third quarter. As we noted last month, most economists now insist the economy is picking up speed. But storm clouds remain. The ISM Manufacturing PMI, for instance, continues to register monthly readings below 50, indicating economic contraction by this measure... The PMI initially fell below 50 in August; it's been below that level ever since. In December, the index declined to 47.2, its lowest reading since June 2009, the last month of the Great Recession.

The above excerpt is from the Economy & Deflation section of the January Elliott Wave Financial Forecast.

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