Unemployment Matters

The rumor-mongers broadcasters over at CNBC have been talking a lot about interest rates and inflation. The entire financial world is waiting for the results of the next FOMC meeting on September 18th.

The importance of the unemployment numbers should not be overlooked though. Unemployment numbers will be released on September 7th.

As you can see from the graph, unemployment has been declining and has been a positive attribute of our economy.

In my opinion, if there is a rapid uptick in unemployment, it could be a nightmare scenario. It will magnify the housing sector and mortgage industry problems, with more people unable to make payments and much higher rates of foreclosure. I believe that our economy is much more susceptible to shocks in household income and unemployment because people have extended themselves with their homes and lines of credit.

In this bear scenario, the problems would not remain confined to the subprime mortgage market. It could spread quickly into the regular mortgage market. Relatively unaffected markets, such as the jumbo mortgage market or geographic regions like New York City, could see a downward swing in the next year.

Needless to say, I think the Fed economists are hoping that unemployment remains benign.