By: Ben Myers

The end of the first trading week of 2012 saw data being published that highlighted the stark contrast between the economies of the Eurozone and the US and offered a good indication for many as to why, at this point in time, the USD looks a much wiser investment than the EUR. Positive unemployment data released added more pressure on an already beleaguered Euro and increased the support for the greenback as the safe haven currency for investors. But before we burst out into a chorus of “Amazing Grace” and go rushing in on the USD let’s take a closer look at the unemployment figures recently released.

December 2011 US Unemployment Figures

The raft of positive data released in the US towards the end of 2011 continued this week, with official figures showing the US economy created 200,000 new jobs in the month of December, an increase for the 6th consecutive month and a 50,000 increase higher than what many analysts had predicted. The unemployment rate in the US fell to 8.5%, down from 8.7% in November, falling for a 4th month in a row, and now standing at the lowest level for nearly 3 years, having peaked at 10.1% in October 2009. This news was greeted with open arms by President Obama in an election year, and although voters are not overwhelmed by the feel good factor of previous elections, it appears to many voters that the economic recovery in the US is slowly but surely gathering a little momentum, or at the very worst moving in the right direction.

There were also large increases in jobs in the retail, manufacturing, healthcare, transportation and warehousing sectors, with 28,000 jobs created in retail in December, 23,000 in healthcare and 23,000 jobs created in manufacturing. This meant that 2011 ended with a total of 1.6 million new jobs being created, the highest amount since 2006. Encouraging also, was the fact that the jobs being created were not from the government, with government unemployment down 280,000 for 2011 and private sector employment rising 212,000 in December, making that a total increase of 1.9 million for 2011.

What Does it Mean?

So is all rosy in the garden of America? At first glance, yes, the news is very positive. Falling unemployment figures are always regarded as a welcome sign of the economy moving in the right direction. But, if we scratch just a little beneath the surface of the figures, we are able to see just how delicate the supposed economic recovery in the US actually is.

First and foremost, it is impossible to ignore the season we are in. This is the season not only to be jolly, as the song goes, but also the season to shop. December is the strongest time of the year for the retail sector, so you can expect a large increase in the number of people employed in the retail sector. Telling also was the number of courier and messenger jobs created in the month of December. Out of the 200,000 new jobs created, 42,000 were as couriers and messengers, which by their very nature tend to be only on a temporary basis.

What also must be looked at is the labor force participation in the US. The labor force is defined as the number of people employed plus the number unemployed but seeking work. The non labor force includes those who are not looking for work, those who are institutionalized and those serving in the military. A record 86.7 million Americans constitute the non labor force, an increase of 194,000 in December with the labor force participation rate falling to 64%, the lowest it has been since 1982. There are a total of 240.6 million Americans of a working age, an increase of 143,000 in December, and the long and short of it all is that the American economy is not creating enough jobs at the rate the population is growing.

To get a better understanding of how relevant the recent employment figures are, we can look at the employment to population ratio which highlights the need for 250,000 new jobs created every month, far more than the 200,000 created in a seasonally busy December. At present, the employment to population ratio actually stands at 1983 levels, a time of economic recession. The wider implications of this are large labor pools keeping wages and employee benefits down and increased competition for jobs meaning that the less skilled stay unemployed for longer adding more pressure on an already fragile economy.

So what does this mean for the USD?

Well although the recent news is all well and good and certainly encouraging, we should not read too much into it and take it as verbatim that the US is well on the way to economic recovery. It should be remembered that it’s an election year; any hint of positivity will be leapt on by an administration seeking reelection and with such vulnerability to the global debt crisis and employment not increasing quickly enough in relation to the labor pool, it is too early to say that the US is well on the way to recovery. I for one will be looking at the next 3 or 4 months’ employment statistics for a clearer and more definitive sign of economic recovery in the US which is still teetering on the edge of recession and will not be liquidating all my assets just yet in favor of the greenback.