The unemployment rate index is another indicator of the state of the economy in the country and refers to the fundamental analysis. The index appeared in the 30s during the Great Depression, when unemployment became so high that it virtually collapsed the entire economy, and therefore in the future it was decided not to neglect this indicator.
The unemployment rate – the number of officially working population in the country. The increase in unemployment indicates a decrease in purchasing power, and hence a drop in production and the economy as a whole, which suggests the need to withdraw funds from the national currency of this country.
The index includes a category of people from 16 years old and has three components: the unemployment rate itself, the number of people employed in non-agricultural sector and the number of applications for unemployment benefits. Information about the components of the indicator is published weekly and has a certain background. After all, on the one hand, an increase in unemployment is bad, but on the other hand, can work just go into the shadows? This situation is typical of countries with a developing economy and, paradoxically, but even with high unemployment, the country’s economy is developing quite slowly but surely.
There are certain patterns that link the unemployment index with the level of GDP in the country. For example, a level of 2-5% is normal for a country, and a level of over 10% is threatening. Increasing unemployment by 1% reduces real GDP by 3%.
Unemployment is also influenced by additional factors: demographic and migration, the development of unemployment insurance, the influence of trade unions. In the short run, an increase in the index may mean a quick intervention by government agencies, which by administrative methods can not only accelerate the economy, but also make the national currency attractive to investors. Long-term trend means structural problems in a country’s economy, and therefore it makes sense to leave the market.
And as we have said before, all indices of fundamental analysis are considered only in a complex and only in different time frames. The ability to predict the behavior of the market based on similar events in history will help make the right decision in the current situation, which means to invest or withdraw funds from the currency of a country in time. Good luck with your trading!