What can we see with this graph representing the changes in the unemployment rate in the past 60 years (approximately)? We can clearly see that the unemployment rate in this graph on FRED goes through periods of crests and troughs. It seems to hover around the natural rate, 5%. The exception is in the late 70’s and the 80’s. The lower troughs of the graph are above the natural rate. This tells us that unemployment during that time was very high. In approximately 1981, the unemployment rate was over 10%. That is a very bad unemployment rate, and it indicates economic troubles. From the mid 90’s to the first decade of the new millennium, we can see that the unemployment rate hovered around 5% again.
We can see that in recent years, the unemployment rate has been very high. Part of this can be attributed to the recession of 2008. The positive is that the unemployment rate has been declining since 2010. This is a sign that the economy has been creating more and more jobs this decade. Right now, we can only hope that this trend continues. Personally, I hope that it does because I will be graduating in a bout a year, and I would like to have a job ready. In a few of my previous posts about unemployment, there has been an increasing trend in the creation of jobs this year. Each month has seen more jobs created than the previous. As I mentioned in these other posts, one of the reasons for this is the weather changing. With the winter winding down, more jobs are created. Last month, the United States added a little less than 200,000 jobs. If more than 200,000 jobs are added this month, then that would be another step in the right direction.
Going back to Mankiel’s book, A Random Walk Down Wall Street, we cannot base our decisions on previous trends. As we can see on the graph, the unemployment rate does not follow a perfectly linear trend. Stocks do not follow perfectly linear trends either. Right now, one would expect that the unemployment rate would continue to decrease because it has been this decade, according to the graph. However, something unexpected and unpredictable could happen, such as a natural disaster, that could leave a lot of people jobless. If this were to happen, then the unemployment rate would skyrocket.
Mankiel also mentions that there is more than meets the eye with investments. Once again, we could treat the unemployment rate like a stock in terms of unpredictability. I mentioned in a previous post that one reason why the unemployment rate is decreasing is that the size of the labor force is also shrinking. We need to keep background details, such as this, in mind when analyzing and making predictions and assumptions.