It's 1pm --- do you know where your money is and what it is doing
In the early afternoon of this last trading session of a holiday shortened week the equity markets are off significantly. Finding a stock that is up at all today is almost impossible at the moment, so broad based is this sell-off in light of the various employment statistics reported this morning. While the unemployment rate at 9.5% came in slightly better than the 9.6% consensus forecast, so-called payroll numbers were much worse than expected by analysts.
The question here is not why the market is reacting negatively, that's to be expected, but why there is such alarmist commentary from every source in the media, from politicians, and from economists. Doesn't everyone know that employment statistics lag the beginning of a recovery by perhaps six months. On top of that it's the summer when slower activity in many businesses gives the opportunity for layoffs. On top of that the auto industry and all of its economic beneficiaries, not only parts suppliers but also food and retail businesses in affected areas, is seeing a totally predictable decline. And for one more on top of that, until the recovery is absolutely clear all businesses will pare back staff and risk going too far with the cuts, knowing that hiring back enough workers will be absolutely no problem this time around given the depth of recent economic stress.
The most troubling number was the average workweek, down to 33 hours, the lowest since statistics on this metric started in 1964. That basically means that the existing employment levels have plenty of room to expand productivity with no new hiring anytime soon, even as we're stuck with 9.5% unemployment and rising.
These employment statistics should not be expected to improve in the next two months as the rolling restructuring of the auto industry continues and as the pace of momentum from the government stimulus plans only slowly builds. We know that but isn't the market supposed to look at future cash flows. The autumn months always bring improved retail activity as families gear up for school and winter, and as those many people who choose to move in the summer address household needs.
The danger now is that investors will overeact to the summer's employment stats and create a negative momentum in the market, and that the government and politicians will think that more programs and more stimulus and more mandates on businesses will have any impact at all on the painful but needed process that the economy is going through. There might, of course, be an impact, but it could just be one that prolongs the problems.
With the long weekend coming it would be normal for the market, Dow down 177 now, to come back somewhat in the afternoon as shorts cover, take some gains, and then be able to relax out in the Hamptons over the weekend, not worrying about being caught in a Monday morning rally. No recovery in the afternoon would be troubling.
The question here is not why the market is reacting negatively, that's to be expected, but why there is such alarmist commentary from every source in the media, from politicians, and from economists. Doesn't everyone know that employment statistics lag the beginning of a recovery by perhaps six months. On top of that it's the summer when slower activity in many businesses gives the opportunity for layoffs. On top of that the auto industry and all of its economic beneficiaries, not only parts suppliers but also food and retail businesses in affected areas, is seeing a totally predictable decline. And for one more on top of that, until the recovery is absolutely clear all businesses will pare back staff and risk going too far with the cuts, knowing that hiring back enough workers will be absolutely no problem this time around given the depth of recent economic stress.
The most troubling number was the average workweek, down to 33 hours, the lowest since statistics on this metric started in 1964. That basically means that the existing employment levels have plenty of room to expand productivity with no new hiring anytime soon, even as we're stuck with 9.5% unemployment and rising.
These employment statistics should not be expected to improve in the next two months as the rolling restructuring of the auto industry continues and as the pace of momentum from the government stimulus plans only slowly builds. We know that but isn't the market supposed to look at future cash flows. The autumn months always bring improved retail activity as families gear up for school and winter, and as those many people who choose to move in the summer address household needs.
The danger now is that investors will overeact to the summer's employment stats and create a negative momentum in the market, and that the government and politicians will think that more programs and more stimulus and more mandates on businesses will have any impact at all on the painful but needed process that the economy is going through. There might, of course, be an impact, but it could just be one that prolongs the problems.
With the long weekend coming it would be normal for the market, Dow down 177 now, to come back somewhat in the afternoon as shorts cover, take some gains, and then be able to relax out in the Hamptons over the weekend, not worrying about being caught in a Monday morning rally. No recovery in the afternoon would be troubling.
posted by John Borden at 1:03 PM
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