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2/5/10

Unemployment fell by 0.3%

As predicted several hours ago, the unemployment has decreased by 0.3% to 9.7%.
This was not expected by the market with the average forecast of 10% and the range from 9.9% to 10.2%. The decrease will accelerate in February. The reason behind the drop is the secular decline in the rate of participation in labor force, as decribed in this post.

Unemployment in the USA on a rapid decline

We would like to present one simple figure before the announcement of the employment situation in the USA. This is the link between unemployment and inflation. In the short run, they compensate each other, i.e. a large increase in the unemployment is compensated by a decline in the inflation (with CPI as a measure of inflation). Figure demonstrates that the inflation leads by six months and has been picking since August 2009. As a result, the unemployment in January or February will start to decline as well. By June 2010, the unemployment will drop to the level of 6% to 7%.