Friday, June 5, 2009

Monthly Employment Report and the Market's Reaction

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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The monthly Employment Report was released this morning and according to the U.S. government payrolls dropped by 345,000. While this number would have been considered highly negative before the recession began, it was the lowest since last September and this was the fourth decrease in as many months. While job losses were less than expected, the headline unemployment rate came in above expectations at 9.4%. It was up from 8.9% last month. A more realistic number, which takes into account discouraged workers, indicates that the unemployment rate was actually 16.4%.

While you should look at U.S. government employment statistics with a jaundiced eye, the current report does seem to indicate that a sea change has taken place. For the first time since the Credit Crisis began, job losses for the previous two months were revised downward instead of upward. The March numbers originally came in at 699,000, but are now 652,000 and April was 539,000 and is now 504,000. It looks like job losses peaked in January at 741,000. This was the most since 1949. This was also the first report in a long time where government jobs didn't supposedly increase. According to the report, education, health care, and leisure and hospitality added jobs in May.

U.S. stock futures immediately went up after the report was released and bonds fell with interest rates on the 10-year rising 18 basis points (a basis point is a hundredth of a percent). Oil shot above 70, getting at least as high as 70.32, but then lost its gains (70 is an important resistance point). The U.S. dollar went down and so did gold and silver (they should have moved in opposite directions).

At this point it looks like the worse declines of the recession, already the longest in post war history, are over. This doesn't mean that the recession is over, just that things are getting worse at a slower rate. When the jobs numbers start to actually show increases in employment month after month, that is how you will know the recession has finally ended - and that looks like it is still many months away.

NEXT: The U.S. Dollar, Gold, and Oil

Daryl Montgomery
Organizer,New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

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