Jobless Recovery Would Call for Nuanced Investing
The unemployed don't spend much.</br></br>They do, however, brush their teeth and power their homes and seek medical care. And the companies that sell such products or services could remain attractive investments as the economy heads into what many see as a jobless recovery.</br></br>The U.S.'s unemployment rate recently hit 9.5%, its highest level since the early 1980s. Many economists see it going above 10% and only slowly receding. They say an economic recovery won't inspire much hiring as companies grapple with slower economic growth, overcapacity in numerous sectors, and slack demand driven in part by a newfound saving ethic among overleveraged consumers.</br></br>Double-digit unemployment, says Peter Gutmann, economics professor at Baruch College of the City University of New York, "could be with us for some time."</br></br>A jobless recovery might not decimate the stock market overall since high unemployment limits wage pressures and keeps interest rates low. Low rates "are helpful for the P/E [price/earnings] multiples on stocks" because investors perceive better upside in equities than in safe, low-return Treasury bonds, says Richard B. Hoey, chief economist at Bank of New York Mellon.