"Potemkin’s unemployment". Fundamental overview on March 4, 2016

As usually, Friday’s data on labor market is the markets’ most anticipated statistic of the month. In recent years, the importance of the level of unemployment and the number of new jobs has increased even more, as the Fed directly links their further actions to restore the dynamics of employment. Today's data is expected to be very strong, if you look at the numbers. Unemployment is likely to stay at 4.9%, while the number of new jobs in February, may be close to 200k.

However, the reality behind these figures is not as rosy as it might seem at first glance. Partly, that is why these seemingly very populist statements of Donald Trump, who is actively fighting for the Republican nomination for the presidential election, are so broadly supported among the ordinary Americans. This happens for one simple reason - loudly and with much fanfare declared the recovery in the labor market is strikingly at odds with the people’s feeling of the surrounding reality.

The first and main reason here is the part-time employment. If a person works at least an hour a day, the official statistics does not consider him or her as unemployed, and he or she is not included in the 4.9% (unemployment data for the last month; pre-crisis level - 4.4%). For example, an alternative measure of unemployment, U6, which includes part-time employees and long-term unemployed, is now at the level of 9.9% (the pre-crisis level of the indicator is 7.9%).

According to the official statistics, the unemployment is almost defeated and the pre-crisis level is reached. But the U6 measure is separated from the same level exactly by 2%. Two percent is about 6 million of Americans who forced to work part-time, as well as the 2.1 million of long-term unemployed, i.e. those who for some reason gave up to find work, and so the official statistics just ignore them.

Moreover, for the last year the government's unemployment rate fell from 5.7% to the current 4.9%, but the number of long-term unemployed has not changed and balancing at the level of 2 million people. There is another problem - stalled revenue growth. The average income of American families on an annual basis adjusted for inflation is $ 53600, which is equivalent to the 1996 level. That's why the Fed so kind to the revenue growth - without it to expect significant growth is hardly expected.



If we go back to statistics that will be published, it is expected rather strong, as it confirmed by the annual report the ADP released on Wednesday. If data will be released at the expected levels, the dollar is likely to gain impulse for further strengthening. Especially strong it will be, if the number of new jobs will exceed the psychologically important level of 200k, although the significance of this will be little different from 195K, but these extra 5k can give a significant boost to the market.