U.S. Workers Unemployed for 27 Weeks or More: 5,500,000
January employment statistics blew past economists' expectations, indicating the recovery may be picking up steam. The headlines were uplifting: 240,000 jobs were added the first month of the year as the unemployment rate fell to 8.3 percent. Even the average number of hours worked per employee exceeded expectations. The data included one troubling, less-publicized number: Slightly more than 5.5 million workers remain among the long-term unemployed, seemingly trapped on the treadmill of joblessness. Federal Reserve Chairman Ben Bernanke this week underscored that fact, saying the job market is a "long way" from normal.
Photograph by Paul Taggart/Bloomberg
Why It Matters
The federal government counts anybody out of work for more than 27 weeks as among the long-term unemployed. While the current number is down from its modern peak of 6.7 million in early 2010, it is still at its worse level in generations, and the U.S. risks having a huge portion of its potential workforce lose the skills that make them employable. If continued job gains get many of these people back to work, it could boost the economy in the near term, as each newly employed worker has more money to spend on everything from groceries to home renovations.
Graphic by Charlos Gary/Bloomberg
What It Means for Your Portfolio
Although the S&P 500 has returned more than 100 percent since its March '09 low, much of the gain was tied to companies increasing profitability by cutting costs rather than increasing sales. Sales for S&P 500 companies overall remain below their '08 peak, while profits in last year's second half reached an all-time high. There's a limit to how much profitability can be wrung out by cost-cutting, so further gains in profitability will likely require higher sales. And if the number of long-term unemployed isn't significantly reduced, the profitability rebound could be in jeopardy.
Photograph by Daniel Acker/Bloomberg