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Why Didn't the Stock Market React to Positive Unemployment News?
Published: 01/07/2012 by Kevin Mulligan
The most recent unemployment numbers showed the unemployment rate has finally dropped below 9%. The economy added 200,000 jobs as part of that improvement. Yet when the numbers were released the stock markets did not react as you would expect to such positive news. Why?
Did Unemployment Change More Than Expected?
While any move down in the unemployment number is great news for an economy that has been mostly stagnant for several years, you have to keep your perspective. Unemployment did move down; that is good news. But the stock markets did not react overwhelmingly to the news because the drop in unemployment was expected. Teams of economists track job data and trends; the overall expectation was for unemployment to dip during the holiday season. The most common expectation was 150,000 jobs created. With the report coming in 33% higher at 200,000 you would expect a positive reaction from Wall Street.
The Impact of Seasonal Jobs
The reason everyone expected a drop in unemployment is seasonal jobs. Shipping departments at companies across the country that process all of those online orders increased staffing. Stores that ship to their brick and mortar locations needed additional packing and shipping help to get product out on time. Those brick and mortar stores hired additional help to check out the purchases of all of those holiday shoppers. Companies like FedEx and UPS hired additional help to distribute that high volume of packages throughout the country.
But the stock market didn't change significantly because the job growth isn't expected to be permanent. Those seasonal jobs won't last forever and companies will cut the temporary staff due to much slower demand from customers.
Definition of Unemployment
Another key aspect of tracking unemployment numbers is who actually counts in the unemployment number from the government's standpoint.
Only those that do not have a job of any kind, have sought employment in the last 4 weeks, and are still available for work. To be considered actively looking for work is applying for jobs, having an interview, contacting an employment agency, or reaching out to a school's employment center. You even count as actively searching for new employment if you talk with friends or family about your job search. If you don't maintain some sort of active employment search you are qualified as a passive job seeker and do not count to the unemployment number. Passive seekers are those that are reading job postings but not applying on their own. They are making little, if any, effort to regain active employment. They can drop out of the labor force – overall a bad thing – but decrease the unemployment number.
This is important to note because while the formal unemployment number dropped, the American economy is still short about 6 million jobs from where it was before the recession began. All told there are almost 24 million people either out of work or underemployed right now. When you compare the 200,000 jobs that were added in the latest report to 24 million, you can understand why the markets didn't overreact, especially considering many of those jobs were courier jobs tied to increased consumer spending.
