The underemployment rate is an important metric that measures the number of unemployed people, and the number of part-time employees seeking full-time employment but unable to find it. This is a far more realistic measure of the employment situation in a country than unemployment data alone. Consider that US unemployment was measured at 4.8% in January 2017, up from 4.7% in December 2017. Any figure beneath 5% is generally regarded as full employment, but as the above metric indicates, the US economy is nowhere near full employment. In fact, the underemployment rate has been consistently increasing since October 2016 when it was up 12.7% (y-o-y).
By November, it jumped to 13.2%, followed by a rise of 0.5% to 13.7% in December, and 14.1% (y-o-y) in January. Clearly year-on-year metrics differ between the unemployment rate and the underemployment rate. This data provides traders with plenty of cannon fodder to place call and put options on different aspects of the economy. For example, by measuring which sectors added the most or the least jobs year-on-year in January 2017, it is possible to place call or put options accordingly. Health care increased modestly in the latest jobs report, but a repeal & replace of Obamacare could dramatically alter employment prospects in the industry.
What Does the Data Mean for Traders?
On a more practical level, negative economic data releases such as sluggish wage growth, poor underemployment figures, or weak unemployment data don’t have any immediate effect on Fed policy. The Fed FOMC will not be so eager to raise the federal funds rate if the economy is underperforming. Recall that the hawks get their way when the US economy is firing on all cylinders. In other words, when unemployment numbers are low and holding steady, inflation figures are rising, NFP data is strong and GDP growth is bullish, rate hikes become more likely. What we have seen in the latest bevy of economic data releases is at best a mixed message. While NFP data increased to 227,000 – well above the forecast figure of 180,000, it is not the only metric to consider.
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