Last Friday, the eagerly awaited January jobs report came out, and it was, frankly, a bit of a flop. The unemployment rate did shrink 0.4 percentage points from 9.4% in December 2010 to a flat 9% in January 2011. But the economy added only 36,000 jobs during the month, far short of the 145,000 that were expected.
"The recovery in jobs has been very anemic. We're not doing as well as we ordinarily do during a recovery," says Hugh Johnson, an economist and the chief investment officer of Hugh Johnson Advisors in Albany, N.Y. "The economy cannot grow by adding just 36,000 jobs a month."
If you have a job, you may be thinking that none of this means a whole lot to you. Or maybe you know it means something, but you're not sure what. So, that's what I'm here to do: break it down and explain what you need to know.
Key Gauges of Economic Health
Job growth and unemployment are both key gauges when it comes to judging the economy's overall health. "They are one of the measures as to how the economy is doing, and they can give people either a high level of comfort or a low level of comfort. In other words, if you have a job, will you still have one in six months or a year? Are we headed in the right direction?" explains Johnson.
As far as job growth goes, it's plain to see that adding 36,000 jobs a month isn't enough. But what is?
The answer comes down to careful math. "You're looking at how many jobs you need to add each month to make up for the 8.3 million losses during the crisis -- and how many jobs we have to add to make up for those losses by the end of 2012," says Johnson. This isn't a calculation you need to do, but let's just say we need to be adding closer to 300,000 a month.
Keep Your Job
One thing about these numbers is pretty obvious: Jobs are still few and far between. Although we're certainly making progress, it's clearly going to take a while, so you should stay put unless you already have another offer.
We're not seeing as many layoffs as we once were, but they're still a possibility. That means you need to be doing your best to make your company, and your boss, see that you're a vital part of the business.
It also means that having a hefty emergency fund -- enough to cover six to nine months' worth of expenses – continues to be crucial, in good economies and bad. And if you're among the unemployed, look to industries that are growing: technology, health care and education top the list.
Hold On to Your Investments
Slow job growth can actually be good for your portfolio, says Johnson. "It is, in a perverted way, good news for investments that employment isn't growing too rapidly and taking too big of a cut out of profits. Companies are not hiring many workers, and therefore more of their revenue goes right to the bottom line in the form of profit."
As the economy continues to add jobs -- and Johnson says we're going to start picking up speed in February, when he predicts we'll see a "very good number" -- people will start feeling more secure, which means they'll spend more money. More spending leads to more jobs, and slowly, we'll pull ourselves out of this mess.
What Is Your Risk Tolerance?
Answer the question "What type of investor am I?".View Course »