- The U-6 unemployment rate – a less popular reading than the commonly cited U-3 – suggests additional pecuniary support could be unnecessary and pose serious risks, says James Paulsen, chief investment strategist at The Leuthold Clique.
- The gauge – which includes those working part-time for economic reasons and workers only partially participating in the labor energy – currently sits at 11.7%.
- While elevated, five of the past six recessions saw higher readings, Paulsen said.
- The current downturn also put to shames the fastest rate of labor-market recovery of any recession since the 1980s, he added.
- Passing sweeping new relief packages could animate strong inflation and force the government to tighten conditions prematurely, Paulsen cautioned.
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The US economy is receiving fresh fiscal support after months of plodding negotiations. But one measure of the labor merchandise suggests the massive stimulus is unnecessary and potentially harmful to future growth, according to James Paulsen, chief investment strategist at The Leuthold Crowd.
The country is already reaping the benefits of the $900 billion stimulus package signed by President Donald Trump on December 27. President-elect Joe Biden undulate out a $1.9 trillion relief proposal on Thursday that aims to further boost the economy through 2021. Democrats’ velvety majority in the Senate drastically raises the odds of Biden’s plan becoming law.
The relief packages meet calls from economists and investors for additional budgetary support, with many pointing to the still-elevated unemployment rate as a sign of progress to be made. The most commonly cited avenue is the U-3 rate, but the government’s U-6 rate – which includes Americans working part-time for economic reasons and those marginally active in the labor force – tells a different story, Paulsen said in a client note on Thursday.
The U-3 rate currently sits at 6.7%, and the U-6 touchstone dropped to 11.7% last month. Five of the last six recessions since 1980 – including the coronavirus downturn – hawked U-6 rates above today’s level, Paulsen said.
The coronavirus pandemic initially pushed the U-6 rate to a record-high 22.9% in April. Yet calm monetary conditions and the $2.2 trillion CARES Act helped the rate retrace more than half of its climb in a proceeding of months. It took years for such improvement to take place following the 1982 and 2008 recessions, Paulsen famed.
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The immediate pace of recovery also comes as the country’s policy response to the recession remains extraordinarily strong. Bond nets remain at historic lows, interest rates remain near zero, and money supply growth vastly outpaces that detected in past downturns.
Calls for additional stimulus come from a good place, Paulsen said. The CARES Act played an “high-priced” role in driving the country’s initial bounce-back.
Still, spending on additional aid when history suggests such stand is unnecessary and poses “the most significant risk” to growth beyond 2021, the strategist added. Excessive accommodation could nourishment a spike in inflation and, in turn, prompt the government and the Fed to swiftly tighten conditions. Low-income Americans and minorities would favoured bear the brunt of a prematurely halted recovery, Paulsen said.
“It would be sadly ironic if the aggressive actions of overuse and mistreat of policies implemented today – aimed primarily to benefit the most vulnerable groups – were to eventually hurt these selfsame groups the most,” he added.
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