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10 Reasons the Stock Market Will Move Lower in 2010: Part 6

By Edited Nov 13, 2013 0 0

The Unemployement Rate Will Remain High

The unemployment rate has been on the rise for a solid two years and has recently peaked recently at 10% of the population being unemployed. It is one of the few economic indicators that has yet to show any sign of a turnaround even as the market surged higher in 2009. Housing showed signs of recovery, inflation remained tame, the banks recovered from near failure, and corporate profits surged, but the unemployment rate continued to move lower in 2009.

The most recent unemployment reading that came out on Friday, February 05, 2010 showed that the unemployment rate has dropped to 9.7%. Although it dropped by .3%, the month of January still shed 20,000 jobs. Since the "recovery" began last year, there hasn't been any solid job growth. The pace of job losses has apparently slowed, which has given the market reason to continue higher.

Unfortunately, this unemployment number does not take into account those Americans who have dropped out of the job hunt after 6 months. This group became frustrated and hopeless, and decided to quit pursuing a job. When this group returns to the job hunt, it has the capacity to increase the unemployment rate by .5%.

There are also thousands of American workers that have returned to work after being laid off. These workers are likely returning to fragile companies that are just barely staying afloat. Another blip in the economy, or even higher interest rates on loans, could send many manufacturing companies into another financial tailspin. You can bet those workers that have recently returned to the workforce will once again be laid off.

Even as the economy has had somewhat of a small recovery over the past year, the unemployment rate has continued to increase. Banks have recovered somewhat, but they are still tightfisted towards small businesses. Corporations have shown strong profits, but mainly through cost cutting measures. These companies will continue to have trouble borrowing from the banks, and will be forced to lay off workers in order to cut costs and drive profitability. As the unemployment rate continues higher, investors will realize the recovery was only temporary and the stock market will continue its trek lower.



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