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Friday, September 05, 2008
Unemployment Rate Surges to 6.1%
Adam Samson
FOXBusiness
The unemployment rate jumped to a five-year high of 6.1% in August, far exceeding economists’ expectations that it would inch higher to 5.8%.
The Labor Department reported Friday that employers shed 84,000 non-farm jobs, exceeding the consensus estimate that the economy would lose 75,000 jobs. Job losses were widespread, as the manufacturing, services and construction sectors were slammed. Particularly damaged was the auto industry, which lost 39,000 jobs in manufacturing and 14,000 jobs in retailing.
The health care, government and education sectors all gained jobs -- however, not enough to offset the decline.
Average hourly earnings edged seven cents upward to $18.14. The modest increase of only 0.4% compared with July, and 3.6% compared to August last year, suggests workers are having difficulty pushing for higher salaries. Indeed, the FOX Business Shopping Cart, a measure of food price inflation, has jumped by nearly 8% in the past year. This trend of skyrocketing prices and stagnating wages shows that the workers, the cornerstone of the economy, are in a grim situation.
“The report confirms that the improvement in [economic growth] in the second quarter was just a head-fake,” said Nigel Gault, chief U.S. economist of Global Insight.
Economists often refer to a “multiplier effect,” wherein problems in separate parts of the economy feed on each other and make the overall picture worse than they would have done on their own. As workers are pinched, they might begin spending less, choking the economy’s ability to expand. A look at economic statistics show that the multiplier effect might have already begun to take its toll.
The unemployment rate has increased by 1.4 percentage points since August 2007; since World War II, every time the unemployment rate has jumped by a full percentage point or more in the course of a year, the economy has fallen into a recession.
What’s bad for workers might actually be a relief for the Federal Reserve. Since price inflation has not yet seeped into wages, policymakers might be able to hold interest rates steady at 2% for a longer period to promote economic growth.
“For the Fed, the report confirms that the notion of a rate hike to combat inflation is fanciful--the question now is rather whether the Fed might need to cut again,” Gault said.
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Some mutual funds want you to pay for the privilege of them (or your investment adviser) taking your money to invest. It's called a load, and it works like a cover charge to get into a nightclub. Luckily, there are such things as no-load funds. As the name implies, shares of these funds are sold without a fee paid to a broker or investment advisor.
The entire amount you invest in no-load funds goes to work for your returns. On the other hand, with load funds, right off the bat you're charged commission (not to mention other fees incurred over the life of the investment). Let's say, for example, you invest $25,000 into a load fund that charges a 5% commission. This costs you $1,250 off the top, bringing your actual investment down to only $23,750.
The often-cited horse race analogy argues against investing in load funds. Here's the logic behind it: Would you place a bet on a horse that had to start a race 200 yards behind the others? Well, maybe you would if you got a tip from a sketchy, trench coat-clad man in a dark alley. However, under most circumstances, it's not smart to put your money on that handicapped horse.
But some argue that at times that man in the trench coat (aka your broker) knows more about the horses than you do, and has a better shot at picking a winner. Also, sometimes these fees are unavoidable because some funds are available only through investment advisers.
Cost-benefit analysis can help determine when a load fund is worth it (in other words, when it will score you a load) and when it is better to "do it yourself" and avoid the fees. Load-fund fees range depending on share class and can cover a variety of costs, such as paper work and fund management.
