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Why a Strong Jobs Report Could Mean Persistently High Unemployment 

Kristina Hooper 



Kristina Hooper, US head of investment and client strategies, spells out the implications of the latest jobs report for the labor force, the ongoing economic recovery and QE tapering.

Key Data Points

June employment report: 195,000 non-farm jobs added
April and May jobs numbers: Revised upward
Unemployment rate: Steady at 7.6%
Participation rate: Rose to 63.5%
U-6: Up to 14.3%
Long-term unemployed: Fell slightly to 36.7%

The newly released US employment report showed 195,000 non-farm jobs created in June, which was much higher than expected. April and May jobs numbers were also revised upward, but the unemployment rate is holding at 7.6%—higher than expected.

This much-anticipated report has implications for when the Fed will taper its quantitative easing (QE) program. With a strong jobs number showing that the US economy is moving in the right direction, the Fed may begin tapering sooner rather than later.

On the other hand, the added jobs could coax more disaffected people back into actively searching for jobs, which would keep the unemployment rate elevated. Currently at 7.6%, the unemployment rate has been trending downward since its peak at the end of 2009. However, this was mainly due to the long-term decline in the participation rate (disaffected workers leaving the labor force), which now stands at a historically low 63.5%. (For comparison purposes, 2008’s level was around 66%.) The participation rate did improve slightly in June, but it is still acting as a headwind that is preventing the unemployment rate from falling. As a result, the Fed’s 6.5% unemployment target may not be reached for some time.

Of course, the Fed will use a range of labor market indicators to consider when to taper QE. This is still a flawed labor recovery, which the Fed is likely to factor into its evaluation of the economy’s health. Case in point, U-6 (which consists of all unemployed people plus those marginally attached to the labor force as well as those employed part time for economic reasons) rose in June to 14.3%—a large number that speaks of a high level of underemployment. Moreover, the number of long-term unemployed (or “persistently unemployed”; those jobless for 27 weeks or more) fell slightly in June but remains high at 36.7%. As we know, it becomes more difficult to obtain employment the longer one is out of work. Making matters worse, this segment of the population is coming close to losing their unemployment benefits.

While market watchers should view the latest jobs numbers as a positive sign of recovery, any bullishness should be tempered by the still-high unemployment rate, which could remain elevated despite the improved job-creation trend because more disaffected workers will be re-entering the workplace—and not everyone will be able to secure a good job. We hope the Fed will recognize not only the strengths but the weaknesses in this recovery, and adjust its monetary policy appropriately to allow for an effective hand-off from monetary stimulus to fundamentals as the key drivers of the economy.

The material contains the current opinions of the author, which are subject to change without notice. Statements concerning financial market trends are based on current market conditions, which will fluctuate. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Forecasts and estimates have certain inherent limitations, and are not intended to be relied upon as advice or interpreted as a recommendation.


Allianz Global Investors Distributors LLC, 1633 Broadway, New York NY, 10019-7585,, 1-800-926-4456.


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