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Is US unemployment scenario as good it seems?
Jun 6, 2015

Do numbers ever tell the real story? Loads of statistics on economic data could not foresee or prevent the financial crises that still continue to haunt global economy. Ironically, the key economic policies are based on such data. One can imagine the mess that can follow if the picture portrayed is not correct.

Sometime back, it was new formula based GDP numbers of India that caused much controversy. Recently, this anomaly between the statistics and what could be the real situation was captured in case of reporting of US unemployment data. As per the US Labour Department, the unemployment rate was 5.5% in May. However, if one considers the metric used by Bureau of Labor Statistics to capture unemployment rate (known as U-6), it comes to 10.8% for May, almost double. What the latter captures is the unemployed, under employed and discouraged, which we believe makes more sense.

Unemployment data reported by US Labour Department could be strong enough for Fed to hike rates soon. However, the IMF believes that could be premature, considering a fragile recovery! On the other hand, Mark Faber has something different to say. He is hardly bothered over the expected rate rise. The renowned editor and Publisher of Gloom, Boom and Doom compares US economy to a sinking ship and expects it may unleash another round of Quantitative Easing.

Whether it is a rate hike or Quantitative Easing in US, the impact on India is likely to be disturbing. The former can lead to the flight of foreign money thus rattling Indian markets. On the other hand, the latter can lead to too much of idle money chasing high return assets leading to a bubble across asset classes. So how can a common investor shield himself from such developments? We believe that one of the best ways to do so could be bottom up investing and asset diversification.

Data source: CNBC, Bureau of Labor Statistics

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