Why Should Investors Track The Unemployment Rate in The Economy?

Published by Sharekhan Education | December 5, 2020

Why Should Investors Track The Unemployment Rate in The Economy?

The unemployment rate is the total number of people who are not working but looking for work as a percentage of the workforce. When the unemployment rate is low, there will be more spending in the economy, which will improve the GDP.A higher GDP augurs well for stock market returns as it shows that the economy and businesses, in general, are doing well.

A low unemployment rate is common during an expansion or recovery phase of the economy, and high unemployment is common during a recession or contraction phase. During a recession or contraction, the government tries to improve employment through fiscal spending and government schemes. A reasonably acceptable rate for unemployment is 3-5%. The agencies which track unemployment are the Centre for Monitoring Indian Economy and Naukri job index. Naukri Job Speak Index tracks jobs across different categories such as sectors, functional areas, city, and work experience. The CMIE index tracks urban and rural employment. The index is tracked every month and can be analyzed by comparing the data on a year-on-year or month-on-month basis. A rising year-on-year trend in both the CMIE unemployment rate and Naukri Job index indicates that the economy is doing well, and a declining trend indicate that the health of the economy is not well. However, the unemployment rate is not without its flaws as it considers part-time workers as full-time workers and those who have applied for jobs in the past four weeks.

Source: Tradingeconomics.com and Naukri Job Speak Index

Learn stocks trading course, derivatives and trading strategies from sharekhan Education’s online Mastering futures and options trading course.