How High Can Unemployment Go Before We Derail?

The S&P 500 index has rallied 40%+ from its March 2009 low, and is up 8% Year To Date. Despite this solid performance, unemployment has surged to 9.7%, and many forecast the increase will continue until 11-13% unemployment. We've got 12% unemployment here in California already.

The question I have is: How high can the unemployment rate go before the bull market derails? Is the level 15%, or is the level as high as 20%? I cannot imagine being unemployed and desiring employment in this market. There's just so little out there and the competition is tremendous. For those who are already employed, things seem hopeful that with earnings rebounding from 2008 and less people to pay, 2009 could be a big year.

Is the market currently being driven by the “90% employed” segment of the population who thinks the other 10% doesn't really matter to the economy's bottom line? With consumer spending consisting of 70% of GDP, how can we ignore the fact that 1 out of every 10 are not working, and likely another 10% are underemployed and looking for more work to survive? Am I looking backwards, since unemployment is a lagging indicator, and the stock market is a leading indicator?

Unemployment rate in America

It absolutely perplexes me that euphoria is back in the markets. We shouldn't be surprised if we double dip in 2020, and see a long drawn out recovery until mid 2010. Personally, I'm raising cash by pulling money out of the market. We've had a great rebound and I don't want to get greedy.

Readers, where do you think unemployment levels are heading and what are your arguments if you think the markets are going higher?

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9 thoughts on “How High Can Unemployment Go Before We Derail?”

  1. RB @ RichBy30RetireBy40

    I have a feeling that the official unemployment rate will peak at 11.5%-12% before we head down again. This isn't for another 6 months. The worst is over. I'm definitely seeing a lot of people find jobs over the past couple of months. Things are picking up.

    Fingers crossed!


  2. Friend got fired 1 month before maternity leave. She got 4 job offers within the next 30 days, all paying about the same and in finance!

    Some people are looking to see if they can game the system by joining Citibank. Join the government bank of Citibank, and get a 50% pay raise sounds sweet to me!

  3. Went to Peter Luger's steakhouse in Williamsburg, NYC and dropped $350 between the 4 of us last night. Place was packed!

    Market is coming back for sure.

  4. If you never read the media, you would swear the good times are here again in my city. Restaurants and bars are packed, and the traffic is hearty. All about hanging on, I agree!

  5. This is a jobless recovery. Those who can hang on, and stay in the game will be handsomely rewarded. I would be very angry if i was unemployed, watching all this gov't stimulus, and everybody get rich again.

    But, we all go through tuf times and stuff. We'll see.

  6. I have a strong feeling that employment is going to come back with a vengeance this coming Spring. Companies over fired like usual, and are going to have to scramble to rehire. The war for talent begins now!

  7. I recently bought a ipod from this 26 year old guy. He said 25% of his friends are unemployed, but they are still going out eating and drinking all the time. It's all good.

  8. I think the magic # is 20% unemployment. Once we hit 1 out of 5 people officially unemployed, the markets will turn down, and there will be riots on the street.

    For now, if you are employed, you're feeling more confident everyday that you are going to get paid b/c there are 10-30% less people to pay at your company and earnings are going up!

    The name of the game is survival!

    Billy Bob

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