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Unemployment: It's Worse Than You Think

It seems lately that investors and everyday Americans are a lot like that mythical thirsty man crawling through the desert, looking for water. We've crawled our way through financial crisis and a harrowing stock market drop, and now we're desperately looking for a sign that the recession is ending. And while promising signs have appeared on the economic front, rising levels of unemployment could mean that these bright spots are nothing more than a mirage.

Putting on the brakes
A recent Manpower Employment Outlook Survey produced gloomy results, with hiring plans dropping to their lowest level since the survey began in 1962. While a minuscule 12% of employers expect to increase staff in the fourth quarter, 69% are holding pat, and 14% are planning a decrease. Ouch! That means folks looking for jobs may be hard-pressed to find employment for the rest of this year.

We've already suffered through mass layoffs from big-name companies like AT&T (NYSE: T  ) , Starbucks (Nasdaq: SBUX  ) , and Adobe Systems (Nasdaq: ADBE  ) in 2008 and early 2009. And aerospace giant Boeing (NYSE: BA  ) announced layoffs as recently as this summer. Most economists expect the unemployment rate to top 10% before things start to improve in the labor markets. With so many people out of work or worried about losing their jobs, economic recovery is likely to limp along at best.

Build your defenses
So what can the average Joe or Jane do to protect his or her own interests while attempting to ride out the unemployment storm? Well, first and foremost, make sure you've got a cash cushion available for emergencies. This stash can help protect against job loss, unseen medical situations, or any number of unanticipated expenses. Creating a cash cushion may not be exciting investing, but if the unexpected occurs, it could be the best investment you've ever made.

Second, be ready for more volatility. The stock market fell hard and fast, and its recovery since last March has been equally rapid. There's still a lot of economic uncertainty in the air, so don't be surprised if the market succumbs to another swoon. A correction isn't out of the question, especially given how far and fast the market has bounced back.

I'm not advocating market timing here -- merely advising folks to keep their eyes open and not be surprised by further market stumbles. A knowledgeable investor is a prepared investor.

Along those lines, now may be a good time to reassess your risk tolerance and revisit your current asset allocation. If you thought you could handle the potential ups and downs of more risky stocks, but you've lost countless nights of sleep in the past few years as you've watched your retirement funds get cut in half, maybe you're not as risk-tolerant as you thought. Take this time to move to a less (or more) aggressive allocation, if that's more in line with your current taste for risk.

Finally, don't let volatility or uncertainty cow you into sitting on the sidelines. Investors who decided to yank their money out of the market after last fall's precipitous decline have missed out on the nearly 50% rebound since this spring. There are still good buying opportunities out there, no matter where we are in the business cycle.

One sector I'm expecting good things from is information technology. Companies have cut back on tech spending so severely during this downturn that a big backlog is building.

To take advantage of a potential tech rebound, consider following the advice of the team over at large-cap growth fund Manning & Napier Equity (EXEYX). Management is currently favoring big-name tech players like Microsoft (Nasdaq: MSFT  ) , EMC (NYSE: EMC  ) , and Cisco Systems (Nasdaq: CSCO  ) , all of which land in the fund's top 10 holdings.

Each of these companies boasts significant advantages of scale, a price-to-earnings ratio lower than the average company in its respective industry, and the ability to capitalize quickly and decisively on a rebound in tech spending, thanks to their wide reach in the tech sector.

For more financial planning help and hints on how to make the most of your intellectual capital, check out the Fool's Rule Your Retirement investment service. With your free 30-day trial, you'll get access to a wealth of retirement-focused advice and investment recommendations to help you reach your goals. 

We may still have an upward slog ahead of us when it comes to getting people in this country back to work, but the economy will show brighter signs of life long before the unemployment rate starts to drop. And that means investing opportunities galore -- if you know where to look.

Amanda Kish heads up the Fool's Champion Funds newsletter service, a division of Rule Your Retirement. She is invested in the Manning & Napier Equity fund, which is a Champion Funds recommendation. Starbucks is a Motley Fool Stock Advisor recommendation. Microsoft and Starbucks are Motley Fool Inside Value selections. The Fool owns shares of Starbucks. Click here to find out more about the Fool's disclosure policy.


Read/Post Comments (16) | Recommend This Article (32)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 15, 2009, at 4:26 PM, mikecart1 wrote:

    As an MBA student taking Global Macroeconomics (3rd year student), we talked about how unemployment will never drop to 5% levels. In doing so the following will occur in the US:

    1) Unemployment gets as low as 8%

    2) US becomes Europe

    3) Taxes rise to avoid riots by those out of work

    4) US economy resembles Europe

    5) The world ends

    I added #5, but I am only in the 2nd week of class hehe.

  • Report this Comment On September 15, 2009, at 5:28 PM, justputt2 wrote:

    The Banner of this article in no way related to the content of the article. Bait and Switch or Just a Sucker Punch???

  • Report this Comment On September 15, 2009, at 5:31 PM, plange01 wrote:

    the US is 9 months into a depression 20% of the workforce is already out of work and there has been 2,150,000 forclosures so far this year.the stock market has been in dream world the last 6 months but reality is coming!

  • Report this Comment On September 15, 2009, at 5:56 PM, jason2713 wrote:

    plange01

    I think you're right, I really do, but the market is being propped up, so let the bulls have their taste of sweet nectar before the sourness starts to come.

  • Report this Comment On September 15, 2009, at 6:43 PM, Ruhaan wrote:

    When everyone knows that ultimate reality, it aint coming any time soon. Anyone who knows anything about the market and economy will tell you how amazing this recovery has been and how likely it is that the day of reconning is at hand (I count myself among them). Ultimately it will come but at the moment the money managers are far more cautious with cash either on the sidelines or with put protection in place. Any correction at this point is not likely going to be any more than 10% - 15%.

  • Report this Comment On September 15, 2009, at 7:52 PM, xetn wrote:

    I have said it before and I will repeat; read these charts and then make your decisions:

    http://www.shadowstats.com/alternate_data

    These data are showing the government manipulations vs how they used to report.

  • Report this Comment On September 16, 2009, at 3:11 AM, paultaut wrote:

    As time goes on and more people lose Unemployment Benefits, they will no longer be counted amongst the Unemployed.

    Those working part time because they can't get full time jobs and those who have given up aren't counted.

    so it comes down to this: the current unemployment rate is probably closer to 16% currently. And likely to continue to rise but the number of weekly losses will give a positive spin. Additionally, Seasonal adjustments will play a role in spinning the Facts.

    I did not follow the "shadowstats" link, I didn't have to.

  • Report this Comment On September 16, 2009, at 1:01 PM, Investable1876 wrote:

    Our head of the Federal Reserve, Ben Bernanke, has been flooding the market with money to try to drive down interest rates to stimulate the housing market and put a floor under the declining prices.

    It ain't gonna happen.

    The underpinning of the housing market has been the work ethic of the American employee. He has been making and spending his head off for 20 years. He has been using his home as an ATM machine refinancing to buy more and more goodies he didn't need.

    It's wonderful to buy a riding mower for that 1//2 acre home or a golf cart used only once a week. Keeping up with the neighbors is a must - he just bought a new 6-burner stainless steel barbecue outfit for the back yard. Gotta have one too.

    The new administration now headed by a rank amateur who has never had a job is encouraging consumers to start spending again like the drunken sailors they were in the past. He never heard the word thrift.

    ---------------------

    Money is like muck, not good except it be spread.

    http://www.topinvestingtips.com

  • Report this Comment On September 16, 2009, at 3:10 PM, prginww wrote:

    The problem with umemployment is the government does'nt know how to count. Therefore the unemployment rating is false. If you remember the last census the left out all illegal immigrants that had jobs

  • Report this Comment On September 18, 2009, at 1:55 PM, 2humble2fool wrote:

    In regards to buying MSFT, INTC or CSCO, you're a little late. It looks to me like the backlog caused by the recent recession has already been priced into these stocks. All three are up dramatically over the last six months or so.

  • Report this Comment On September 20, 2009, at 4:06 AM, putster53 wrote:

    I have to say this, because it needs to be said. These hard times were prophesied in the Bible-- and I gotta tell you, we are VERY close to the end!!! The 'powers that be', i.e., the central banks (G8, G20. etc) are the ones that CONTROL the money supply. They , along with the European Union, described in the Bible as 'the new Roman Empire', are working VERY hard to establish a 'one-world currency'. The 'Amero' is coming soon. Ever heard of the Amero? Tim Russert brought us that story in the spring of 2008 and died about 2 weeks after doing the story. The Amero will be the new North American currency--these countries included are the United States (including Alaska and Hawaii), Canada and Mexico. The Amero has already been created-- next will be implementation and circulation.

    Also, you'll notice that Gold has become VERY popular of late. Well, in the end times, Gold will again be used as currency. Don't believe me? Wait a couple more years--the one-world government is coming FAST!!! And don't be surprised if 'Obama' Bin Laden has a LARGE part in it!!!

  • Report this Comment On September 20, 2009, at 5:56 AM, ryanalexanderson wrote:

    > These hard times were prophesied in the Bible-- and I gotta tell you, we are VERY close to the end!!! And don't be surprised if 'Obama' Bin Laden has a LARGE part in it!!!

    Comical. Dude, one-world currency conspiracies are getting a bit old. The American dollar has been a reserve currency for decades. What would be the point of an "Amero"? Who has the political will to implement it? More importantly, why am I even responding to this post?

    And "hard times"... really? Really? Since the bible was published, we've had the fall of Rome, the Black Death killing a third of Europe, two major world wars...but no. -This- period of tepid growth and economic uncertainty, in a few countries, is clearly what the Book of Revelation is talking about.

    I know the cardinal rule of the Interwebs is don't feed the trolls or the conspiracy theorists...but I just can't help myself...

  • Report this Comment On September 20, 2009, at 7:23 AM, samirock007 wrote:

    Hello everyone i am completely new to this forum.

    Interested in learning many new things. Hope we all will share our

    knowledge and talk about different concepts in this forum.

    -----------

    samirock

    ---------

    <a href="http://mls.fastrealestate.net">mls listings</a>--mls listings

  • Report this Comment On September 20, 2009, at 7:28 AM, samirock007 wrote:

    Hello everyone i am completely new to this forum.

    Interested in learning many new things. Hope we all will share our

    knowledge and talk about different concepts in this forum.

    ---------

    samirock

    ------------

    <a rel="dofollow" href="http://mls.fastrealestate.net

    " title=" mls listings "> mls listings </a>- mls listings

  • Report this Comment On September 26, 2009, at 4:59 AM, MightyYen wrote:

    Why do these articles always end with a pitch for one of the fool services?? Are all us unemployed people better off buying the Fool services or keeping those dollars for food and rent??

  • Report this Comment On December 06, 2009, at 9:19 AM, exeter17 wrote:

    All these articles have plugs for TMF services. Apparently the Gardner's own portfolios aren't making enough to pay the staff writers. So they have to make money somehow!

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Amanda Kish is the Fool's resident fund advisor for the Rule Your Retirement investment newsletter.

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