Why the Unemployment Reports Are Key to the Economy Going Forward

Let there be no doubt about it, the single biggest factor that we should watch when trying to figure out the direction of the American economy in the coming months is the unemployment data. The unemployment data, also known as the non-farm payroll report or simply the jobs report, is released on the first Friday of every month by the Bureau of Labor Statistics. Inside the report you can find information as to how many jobs were gained or lost in the last month as well as overall unemployment rate, meaning the percentage of people who are looking for a job and cannot find one. If, like me, you like to look even deeper into the report and find the specific sectors that are the strongest and the weakest that information is readily available as well.

So why should you as citizens of the United States of America be particularly concerned about the unemployment data that is released at the beginning of each month? I believe that this is by far the single best indicator we have as to how the economy will hold up in the coming months. The current financial crisis is unlike anything we have ever seen before and its impact on the overall economy is clearly spreading, but none of us know exactly how bad it could get. The housing and mortgage market is clearly awful and it has been for a couple of years now, but for most of that time the consumer has held up relatively well and the job market, while not strong, wasn't terrible. It seems that in the most recent non-farm payroll data the signs are there that the problems are spreading, and spreading quite quickly. The loss of 159,000 jobs in September was the largest monthly loss in five years and many experts believe that is just the beginning.

What kind of effect will a prolonged rise in unemployment have on the overall economy? Clearly it will take a major toll on the consumer, which is absolutely essential to the well-being of the overall economy. If one is concerned about losing their job is it reasonable to think that they will cut back on their spending? Of course it is. When someone loses their job they clearly are going to be unable to spend very much in the economy, and that just starts a vicious cycle which leads to pain for everyone and the overall economy. Americans understand that job security is extremely important and when they feel insecure about the position they currently hold, it doesn't bode well for retailers, service companies, and the overall economy.

Watch closely the unemployment data in the coming months. If the data continues to plunge and the news just gets worse and worse, the writing is on the wall for a severe recession. When the job market collapses the economy has no way of holding up over the long run. If the data starts to show that employers are becoming slightly more confident and firing less workers, the recession may well be a short lived one and the housing numbers that have looked so bleak for months and months may well get better before they get worse. The unemployment data holds the key to the future of the economy, please pay close attention!