This Might Be About As Good As It Gets

Parts of the economy are booming, and that's scary.

Jun 18, 2014 at 6:42PM


The job market might be about as good as it gets right now. 

That sounds crazy, with almost 10 million Americans unemployed and an unemployment rate of 6.3%, still well above normal.

And, to be clear, the economy could still grow for years to come. 

But dig into the characteristics of the unemployed, and there's an important trend that shows the jobs market is actually pretty strong already. 

The short-term unemployment rate, measuring those out of work for fewer than 14 weeks, is currently about 3%. That's near the lowest it's been in half a century. In fact, we went more than three decades, from 1968 to 2000, without short-term unemployment becoming as low as it is today:


If you lose your job today, the odds of finding a new job in the next month or two are about as good as they've ever been. Maybe you'll take a pay cut, or have to move, but there's a good chance you'll find work quickly. Short-term unemployment is lower today than it was for all of the 1990s, which we consider one of the most prosperous decades in history. 

There aren't many periods in history where short-term unemployment dropped much lower than it is right now. That’s important, because unemployment has a natural floor. If it gets too low, inflation rises, the Fed raises interest rates, the economy slows down, and unemployment goes back up. It's hard to know where that floor is, or if it's entirely tied to short-term unemployment. If history is any guide, though, we're near it.

But if things are so good, why is overall unemployment still so high? 

Long-term unemployment -- those out of work for more than six months -- is still incredibly high historically:


What’s dangerous about this is that those stuck in long-term unemployed may never recover.

“I'm concerned that people who have been without work for years will lose skills, lose hope, and lose contact with the labor market,” Justin Wolfers, an economist at the Brookings Institute told me in 2012. "If this were to happen, we could see a generation remain jobless for much of their lives."

There’s some evidence this is happening. According to Princeton economist Alan Krueger, only 22% of those who fell into long-term unemployment in 2008 had steady, full-time jobs by the first half of 2013. Another one-third stopped looking for work, and just under a third were working part time – that’s part of why the long-term unemployment rate has come down. Less than 15% of those who went into long-term unemployment in 2008 are currently looking for work.

The longer you remain out of work, the harder it is to regain employment. According to the Council of Economic Advisors, those unemployed for less than five weeks have a 31% chance of getting a job in the next month. At 27 weeks of unemployment, it's 12%. After a year out of work, it's just 9%.

Even when the long-term employed do get back to work, it’s usually a big, permanent step down from where they were before. Testifying before Congress in 2010, Till von Wachter of Columbia University explained: "The average mature worker losing a stable job at a good employer will see earnings reductions of 20% lasting over 15-20 years" when laid off during a recession. And then there's the stress. In deep recessions like we just had, losing your job can reduce life expectancy by as much as 1.5 years, von Wachter found.

So, short-term unemployment is great, maybe about as low as it will get. And those stuck in long-term unemployment are increasingly, day by day, less likely to ever recover.

Things are looking better for the economy now than they have in years. But before you get excited about how strong a recovery could be, keep in mind: For most of the economy, things are already pretty good. Maybe about as good as it gets.

Check back every Tuesday and Friday for Morgan Housel’s columns on finance and economics.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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