Because investors equate lower payrolls with higher profits, the stock market historically performs better with higher unemployment. Image: CC Davic C. Foster/Flickr

Stocks rose on the jobs report released by the Labor Department Friday. Job creation in the last two months is the strongest it has been since before the recession. But the market’s current response to a positive jobs report is unusual, and stocks could fall again if the labor market continues to improve.

First quarter gain for stocks and jobs

The U.S. unemployment rate dropped from 8.9 percent in February to 8.8 percent in March, the lowest rate in two years, according to the Labor Department. In response, stocks rose across the market. The Dow Jones Industrial Average rose 87 points to 12,406, a 0.7 percent gain and a new high for 2011. The Standard & Poor’s 500 rose 10 points to 1,335, a 0.8 percent gain. The Nasdaq composite rose 15 points to 2,796, a 0.6 percent gain. Payrolls at U.S. companies increased by 216,000 workers in March after a 194,000 gain the month before. The unemployment rate has been dropping since it was 9.8 percent November, the biggest four-month decrease since 1983. U.S. stocks surged 5.4 percent in the three months ending with March for the biggest first-quarter gain since 1998.

The counterintuitive relationship between markets and labor

Normally companies announcing layoffs benefit on Wall Street because investors believe smaller payrolls equal higher profits. When the labor market was hemorrhaging jobs in January 2009, the stock market gained. In fact, in the past 60 years the stock market has performed better on average when the U.S. unemployment rate was higher rather than lower. According to Ned Davis Research, the S&P 500 mustered an average annualized gain of 13.5 percent when the unemployment rate was above 6 percent. When unemployment dipped to 4.3 percent or below, the S&P 500 managed just a 2.1 percent gain on average. In January 2009 Ed Clissold of Ned Davis Research told MarketWatch that in addition to lower costs and higher profits, traders salivate at high unemployment because it means they will benefit from economic stimulus provided by the federal government. Traders may also believe that by the time unemployment news hits the streets, stock prices have already been affected by job cuts and shares can be flipped for profit if they rise.

Traders hope job news doesn’t get too good

Stocks may have surged on Friday’s good labor market news not because unemployment has dropped but because it hasn’t dropped too much. Traders myopically chase short term gains and don’t consider long-term strategies. In the current environment, many of these traders believe the stock market has been propped up by the Federal Reserve bond buying program known as QE2. Some of them, especially those in the fixed-income market, worry that if the labor market gets too strong, the Fed will quit buying bonds after QE2 is slated to end in June, and the gravy train will stop. As the return of record profits and bonuses on Wall Street while average Americans have struggled has shown, what’s good for stocks isn’t necessarily good for the country. If more Americans keep finding work, the markets could change their tune.

Sources

Associated Press

MarketWatch

CNNMoney.com

The February jobs report indicates that unemployment is starting to consistently decline. Photo Credit: Nightscream/Luigi Novi/Wikimedia Commons/CC-BY 3.0

The February jobs report indicates that unemployment has declined slightly since January. The rate of unemployment declined .01 percent to 8.9 percent over February. It is the third month in a row that unemployment has decreased.

Employers adding jobs

The February jobs report was recently released by the Department of Labor, and it showed that the increase in hires during the month of February was a small one, but an increase nonetheless. The unemployment rate decreased by a paltry 0.1 percent, from 9 percent in January to 8.9 percent in February, according to CNN. Employers added 192,000 jobs to the economy, which was a dramatic improvement over January. In January, employers added 63,000 jobs to the overall economy, but January was slower than February as winter weather brought many areas to a near standstill, according to the Los Angeles Times. Besides an increase in hiring once the snow relented, December and January jobs reports were revised by the Labor Department to reflect that 50,000 new hires had gone previously unreported.

Third consecutive month of decreasing unemployment

The unemployment rate has declined for the third month in a row. The rate of unemployment has waxed and waned for the past several years, and there have been declines noted all along the way, but the unemployment rate declined nearly an entire percentage point from December to February, marking significant progress. The number of initial unemployment claims fell to 368,000 recently, marking a three-year low for new filers. More than 9 million people are claiming unemployment benefits, according to Forbes.  The economy is projected by the Federal Reserve to grow between 3.5 and 4 percent during 2011, though rising gas prices are sure to cause some hiccups over the next few months.

Government spending cuts could scuttle recovery

Congressional Republicans are on a mission to drastically cut the federal budget down to size, which some economists believe will negate any progress made toward curbing the high rate of unemployment, according to CBS. Mark Zandi, the chief economist for Moody’s Analytics, predicted that the House Republican plan to cut $61 billion from the federal budget could result in more than 700,000 people losing their jobs. A similar projection was also released by Goldman Sachs, though the objection was raised immediately that Zandi had been one of the most prominent supporters of the various stimulus packages and had claimed that unemployment would stay below 8 percent with stimulus spending.

Sources

CNN

Los Angeles Times

Forbes

CBS

A Labor Department report showed October job openings reached a two-year high and economists expect the trend to continue. Image: CC tom.arthur/Flickr

Job openings in the U.S. rose to a two-year high in October, according to the Labor Department. The job openings report was good news in the wake of last week’s depressing jobs report in which the unemployment rate rose to 9.8 percent. However, economists say the job openings report is preview of longer-term trends that could result in more hiring over the next few months.

The October job openings report

Job openings in October rose to 3.4 million, an increase from 3 million reported in September. The Labor Department’s Job Openings and Labor Turnover Survey showed that the 12 percent month-to-month increase reversed declines in the two previous months. October job openings reached the highest total since August 2008, when the financial markets were on the brink of collapse. An increase of 369,000 private sector job openings in October was the biggest since 2006. The JOLTS report showed that advertised job openings rose by about 1 million. That’s a 44 percent increase from the low point reached in July 2009, a month after the recession technically ended.

Job openings still swamped by jobless

Even though job openings increased by about 32 percent from October 2009, there were still 14.8 million people unemployed. Competition for jobs remains intense. The JOLTS report showed there were 4.4 people going after each October job opening. Even so, that number is improving from 4.9 people per job opening reported in September and is the best ratio since January 2009. Despite the gains, the hole blasted in employment by the recession is deep. On the CBS News program “60 Minutes” Sunday, Federal Reserve Chairman Ben Bernanke said it could take up to five years before the unemployment rate returns to a “normal” rate of between 5 and 6 percent.

Good news for the job market

There may be a remote chance that the job openings report signals accelerated hiring that could shorten Bernanke’s estimate. There are economists who look at the JOLTS report as an indicator of hiring up to three months down the road. Even though job creation in November fell short of the most conservative estimates, an economist at Credit Suisse in New York told reporters that last month’s dismal jobs report looks like “a bump in the road.” The JOLTS report could be interpreted as a sign that the job market is on the verge of emerging from limbo.

Sources

ABC News

Business Week

MarketWatch

Weekly U.S. jobless claims used to be a reliable indicator of recovery, but current conditions defy a statistical explanation. Image: CC public15/Flickr

Finding good news when it comes to the U.S. unemployment rate requires extremely low expectations. Jobless claims rose last week, but not as much as economists expected. Employment has been growing steadily as the number of people filing for unemployment insurance has held steady, but not enough to budge the 9.6 percent U.S. unemployment rate.

Why the unemployment rate won’t budge

Jobless claims rose a whisker last week, by 2,000 to 439,000, according to the Labor Department. But the Associated Press reports that less than 440,000 people a week have filed for unemployment insurance in three of the past four weeks — the lowest numbers in two years. Over the past month, jobless claims dropped by 16,000 to an average of 443,000 per week — a 4.2 percent average decrease. According to AP, the trends are a signal that more people are getting hired than fired. But economists say jobless claims must fall below 425,000 a week to put a dent in the unemployment rate.

The plight of the unemployed

As hundreds of thousands of freshly unemployed workers file jobless claims every week, the number of people who had been collecting unemployment fell by 48,000 in the week ending Nov. 6. That doesn’t necessarily mean they got hired. People whose unemployment benefits have expired that have moved to federal unemployment extension programs  rose by 121,000 the last week of October. Meanwhile, up to 2 million people will lose benefits when the emergency extensions expire at the end of November. Another 2 million will lose benefits in the next few months. It’s unlikely a lame-duck congress will be able to pass another federal unemployment extension.

Statistics fail to offer clarity

Economists keep close track of weekly firings in the form of jobless claims because the numbers used to be a consistent indicator of economic recovery when they drop. But Bloomberg reports that during the current tepid economic recovery, that relationship appears to be reliable no longer. Companies added 159,000 jobs in October, the fourth straight month more than 100,000 jobs were created. Yet some companies continue to lay off workers while others are hiring. Forty-two states and U.S. territories reported rising jobless claims, while 11 reported a decline. Amid all the confusion, the key statistic that matters, the 9.6 percent unemployment rate, remains stubbornly unchanged.

Sources

Associated Press

Bloomberg

Forbes

The October jobs report shows the 10th straight month of private sector job growth, but the unemployment rate remains stubbornly unaffected. Image: CC TheTruthAbout/Flickr

The October jobs report released Friday by the Labor Department said that the U.S. economy created 151,000 jobs last month. The job creation numbers were more than expected, but barely enough to keep up with U.S. population growth. As a result, the unemployment rate remained stuck at 9.6 percent despite the job gains.

October jobs report numbers

The October jobs report was a somewhat pleasant surprise for economic forecasters that expected a net increase of about 60,000 jobs. The Labor Department report was a major improvement over September’s numbers, which showed a net loss of 41,000 jobs. After hemorrhaging jobs for two straight years, the private sector has shown job growth for 10 months in a row. The October numbers were the best since May. U.S. companies hired an additional 159,000 people in October, exceeding the 92,000 jobs predicted by economists. The government cut 8,000 jobs in October, which resulted in the 151,000 total.

Industries that are hiring

According to the October jobs report, industries that are hiring include health care, retail, temp workers, mining and small businesses. Health care providers hired 24,000 workers. Food service hired another 24,000 and retailers added 28,000. The temporary work force grew by 35,000. A weaker dollar boosted mining to the tune of 8,000 jobs. Because it takes small businesses longer to report their hiring activity to the Labor Department, job creation numbers from August and September were revised upward by 110,000.

A long, hard road ahead

Despite the October job creation, the U.S. has a long way to go. Economic growth is still too weak to affect the 9.6 percent unemployment rate. At least 15 million people are looking for work. Taking into account part-time workers who can’t find full-time jobs and people who have given up looking, the unemployment rate is 17 percent. According to the Brookings Institution, even if job creation grows to the highest levels of the past decade–208,000 jobs a month–it will take 12 years to close the gap between the growing labor force and available jobs.

Sources

CNN

Christian Science Monitor

New York Times

Wall Street just can't stay stable. CC by believekevin/Flickr

The stock market forged ahead last week on news that the consumer confidence index rose. The markets went into reverse a short time later when the Fed released minutes from its latest meeting. The markets rose again on Wednesday, this time on data showing growth in American and Chinese manufacturing output.  This late burst of schizophrenia concludes the darkest August for stock traders in ten years. The Market Volatility Index, also known as the VIX, or “fear index,” jumped nearly 11 percent during the month for its biggest August jump since 2001.

Volatility defined: the fear index

At the closing bell Monday last week, the VIX was documented at 27.21. Tuesday, the VIX finished at 24.55 — a drop of 4.2 percent. The VIX made up the loss on Wednesday, moving to 28.77 — a 4.8 percent rise. A report on the current state of the VIX by MarketWatch said that traders gauge investors’ fear with the metric because the number grows along with market uncertainty. The rise of the fear index matched the fall of the stock market as August progressed to its dismal end. The VIX is up one day and down the next. However, the Wall Street Journal reports that it would have to shoot much higher to cause widespread panic. Genuine concern was evident in 2008 when the fear index went past 80 after Lehman Brothers imploded.The market’s “flash crash” in May generated global jitters. The fear index passed 80 at the time.

Markets not behaving normally

The Fed revealed it knows not where the U.S. economy is bound or exactly what actions will influence its direction. This lack of understanding scared the markets once more to bring a fitting end to the worst August for traders since 2001. Yet stocks resumed climbing Wednesday, the Associated Press reports. Reports showing robust gains in U.S. and Chinese manufacturing surprised everyone and generated optimism about economic recovery worldwide. The sputtering U.S. economy led traders to wager that corporate earnings would suffer in August, thus bringing down the markets. On the flip side, expanding economies in foreign countries will benefit many major U.S. corporations that conduct business internationally.

Analysts are united in their dumbfounded-ness

The market’s sudden turnaround Wednesday after finishing out a dismal August the day before left analysts flat-footed, according to the New York Times. Stephen J. Carl, an equity trader on Wall Street, told the Times that he was taking for granted that the pre-Labor Day week would be uneventful. The manufacturing index, a key metric offered to traders by the Institute of Supply Management, rose surprisingly in August to 56.3 after coming in at 55.5 in July. A lesser score was forecast by economists responding to a Thomson Reuters poll — 53.0. The impact of those numbers confounded Carl. He told the Times he was “perplexed” that manufacturing index of 56.3 would be bumping stocks. But reality may be setting in again soon enough. The markets have been looking ahead to Friday’s jobs report with trepidation. The Labor Department jobs report is expected to show the loss of another 100,000 jobs. Unemployment, after holding steady at 9.5 percent through the summer, is predicted to jump to 9.6 percent. Also rising, of course, will be the VIX.

Sources

MarketWatch

Wall Street Journal

Associated Press

New York Times

The eighth straight month of private sector job growth couldn't offset public sector layoffs, population growth and people re-entering the work force. Image: Thinkstock

The U.S. unemployment rate crept upward in August to 9.6 percent from 9.5 percent in July. But even though the jobless rate rose, employers hired more workers than expected. The uptick in unemployment statistics is being credited to the end of temporary U.S. Census jobs, layoffs in state and local governments and an influx of people resuming their job searches. But private sector hiring increased for the eighth straight month. The Labor Department also revised figures for June and July that show more jobs were created and fewer were lost than originally estimated. The positive aspects of the latest jobs report are giving economists hope that the economy won’t relapse into a double-dip recession.

Unemployed workers overwhelm job creation

The U.S. unemployment rate rose for the first time in four months according to Friday’s August jobs report from the Labor Department. MSNBC reports that although private employers added 67,000 jobs, the U.S. unemployment rate is skewed by the loss of 114,000 census jobs and 10,000 job cuts in state and local governments. More than 500,000 people started trying to find jobs again to further push up the jobless rate–the first time the work force has grown since April. Revised job creation figures also improved the employment outlook. Private sector job growth for July was revised upward to 107,000 from 71,000. June job creation was revised upward to 61,000 from 31,000.

Huge crater in labor market hard to fill

The U.S. unemployment rate has been a persistent and vexing problem. However, CNNMoney reports that by historical standards, the labor market is recovering faster than it has during past recessions. But because so many jobs were lost, higher growth than normal is required replace them. In 2008-09, 8.4 million jobs were lost–about 7 percent of all jobs. Only 3.1 percent of all jobs were lost during the 2001 recession and the jobless recovery that followed. During the 1990-91 recession, only 1.9 percent of all jobs were lost. Sustained job growth returned six months after the current recession was declared over in June 2009. The turnaround took 12 months to begin after the 1990-91 recession. After the 2001 recession, job growth took 22 months to resume.

Economic expansion outpaced by population growth

Job creation has dropped steadily since employers were adding about 200,000 workers a month. CNNMoney said at that rate it would take more than three years to replace the jobs lost in 2008-09. The Christian Science Monitor reports that if the public and private sectors created 100,000 jobs per month, the unemployment rate will not go down. Population growth continuously adds to the labor force, and workers who had given up reconsider and re-enter the labor force. Hiring is slow at the current level of economic expansion because many companies have increased output by working employees harder. However, another Labor Department report showed productivity dropped in the second quarter. To sustain growth employers may have to start hiring.

A decline in worker productivity after several quarters of gains could be a sign that employees are maxed out and companies need to start hiring. Think Stock photo.

A drop in worker productivity for the first time in 18 months is actually good news for the struggling U.S. economy and high unemployment rate. Companies that slashed payrolls during the recession have been raking in profits by getting more output from fewer workers. But the latest report from the Labor Department on worker productivity may indicate that employees have reached their limit. If that is the case, U.S. companies will have to engage in job creation to maintain growth and boost the flagging economic recovery.

Worker productivity in an upside down economy

Worker productivity declined at an annual rate of 0.9 percent in the April-to-June quarter after posting large gains throughout 2009, the Labor Department said Tuesday. The Associated Press reports that U.S. worker productivity is the key ingredient to boosting living standards. It allows companies to pay workers more because of increased production without raising the cost of goods. In most cases a slip in productivity would be a troubling sign for the U.S. economy. But economists believe the unemployment rate has become a threat to the companies that are slashing their work forces. If they start hiring, the job creation will give households the income boost they need to increase consumer spending, which accounts for 70 percent of economic activity. And that would ultimately lead to more demand for those companies’ products.

Workers sacrificed for corporate earnings

For companies that may have believed the U.S. had entered a period where output could keep climbing without bringing people back to work, CNN reports that the latest worker productivity numbers are a dose of reality. Companies did more with less during the worst of the recession. But in the latest Labor Department report, the amount of hours worked rose at a faster pace than actual economic output. Nariman Behravesh of IHS Global Insight in Lexington, Mass., told CNN that companies probably “overdid it” with layoffs during the recession. He said that if for no other reason than keeping employee morale up, companies may have to hire more to avoid worker burnout.

Job creation needed to thwart deflation

Job creation is likely to remain weak for the next few months, Behravesh told CNN. But he’s optimistic that the private sector may be adding more than 100,000 jobs a month by the end of this year and 150,000 jobs a month by the middle of 2011. But ABC News reports that weak productivity is in line with other signs that U.S. economic recovery is losing momentum. The overall economy grew at only a 2.4 percent annual rate in the second quarter, down from a 3.7 percent rate in the first quarter. Some Federal Reserve officials worry that with the unemployment rate stuck at 9.5 percent, employers will seize the chance to push wages down for those still working and prices will follow suit, possibly triggering a vicious cycle of deflation.

Payday cash is being threatened yet again by the economy. This time it’s the wage average that’s wreaking havoc on the economy. A new government survey showed that consumer’s economic rebound is being hampered by an inflation-adjusted wage fall. Since last year, it has fallen 1.6%, which is the biggest drop its seen since 1990. This poses a real problem for the economy because coupled with the cutback on lending, and slow job growth, people don’t have the cash needed to fuel into the economy. And spending is just what the government was hoping would push the economy out of its recession.

Despite the recession being over, its aftermath is now what is hampering consumers from returning to old buying patterns. Many families are struggling with huge health costs, tuition, and daily expenses. All are moving quickly above the inflation rate and stretching people’s budgets beyond their limits.

Labor Department checks in

According to the Labor Department, food costs are coming down. They came down at the largest rate in over 50 years. Despite this being good news, the price of energy grew at such a rate that it ate all grocery savings. For example, Angie Kimbrel, middle-class homeowner in Birmingham, Alabama, has been financially stressed since 2007. She is an insurance underwriter who has seen work slow dramatically over the past year. She said, “I haven’t seen anything getting cheaper.” Her biggest money draws are health insurance and gas.

Economists expect inflation to remain low throughout 2010 because that gives the Federal Reserve the ability to keep interest rates low. Their purpose for the low rate is to encourage people to spend and borrow. Inflation is remaining low, as are wages, because most employers are still wary of raising salaries. The lack of salary potential is weighing heavily on the minds of consumers who have seen a huge decline in jobs over the past two years. In fact, since 2007, the market seen a loss of 7.2 million jobs and the number of unemployed is up to 15.3 million. With numbers like that, it’s difficult for consumers to think positively about their payday cash, even if they are employed. Kimbrel added, “I don’t like seeing my paychecks now because it’s a reminder of how difficult things are right now.”

The wage problem

Mark Zandi, chief economist at Economy.com, said, “When people are unemployed and wages are weak, household spending is depressed and businesses don’t have any pricing power. This is the reason that inflation is not a problem.” The last time a strong wage gain occurred was back in 1973 when a double-digit inflation occurred due to oil prices reaching highs. As a result, many unions made the move to negotiate cost-of-living increases into their contracts.

The economy regulates

Payday cash is still not what it used to be and consumers are concerned. The biggest problem is now inflation is playing a role in wage pricing. Legislators are striving to spur the economy back into action, but it will take time for things to regulate. Until then, consumers need to be vigilant about their savings and budgeting plans throughout 2010 and closely watch inflation.

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Unemployment Benefit Claims Decrease

The labor department in Washington reports that unemployment benefit claims have been decreasing since September. Money lenders will be happy at the recent turn of events, as it means that people who want to take out loans now have jobs with a regular income. Those who are looking to borrow money will now have the security of knowing that they can pay back the loan when it is due.

Labor Department Claims Founded

The labor department has been keeping a close watch on the number of unemployment benefit claims coming in each month, and have seen a steady decline in the figures over the past four months. Latest figures available indicate that claims for benefits fell to a seasonably adjusted figure of 432,000, the lowest it has been since 2008. Economists expected the figures to stay at 460,000, but have been proven wrong this time. It also indicates that there are more jobs available in the market now compared to last year. Unemployment benefit claims had risen to 674,000 back then, and looking at the current figures, one can only hope that the future remains positive.

Companies Want to Create More Jobs

Economic experts report that 40,000 jobs were created in December after 11,000 jobs were cut in Noevmber. If this encouraging trend continues, those who are unemployed may be able to look ahead to a great year, and it will only ensure that people no longer must rely on unemployment benefits or payday loans to make ends meet. Companies want to create more jobs locally, rather than just look elsewhere to get cheaper sources of labor. After people have been supporting these companies through the worst of times, they now need the companies to support them through job creation and stability.

What’s In It For Me?

If you have a job, you can look forward to receiving a regular paycheck, making your life easier. If necessary, you can also apply for a payday loan to meet your immediate requirements that you may have. While this situation may not change dramatically for most people over the next few months, there are still people who must wait for a while before finding a job. The job market may look upbeat in Washington, but the story is not the same in the rest of the country. There are millions of unemployed people who are still seeking their unemployment benefits, which are putting state assistance programs in jeopardy. The Obama administration estimates that nearly 4.9 million people are still receiving benefits across the country. Therefore, it can be safely assumed that the decrease in unemployment claims is limited to a particular region of the country.

Hopes for a Good Year

If companies across the country use the example set by Washington and create more jobs, there will soon be a great increase in many more jobs across the country. More people will be employed, as well as spending more money, perhaps wisely. Should they fall short of funds at any time, there is always a payday loan available to help out.

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