Tuesday, December 25, 2012

Only 80K New Jobs, But Unemployment Rate Drops

Despite a slightly lower-than-expected 80K new jobs the unemployment rate declined from 9.1% to 9.0%. The briefing.com consensus was for 85K new jobs. Today's report included an upward revision of last month's non-farm payrolls from 103K to 158K.

Here is the lead paragraph from the Employment Situation Summary released this morning by the Bureau of Labor Statistics:

Non-farm payroll employment continued to trend up in October (+80,000), and the unemployment rate was little changed at 9%, the U.S. Bureau of Labor Statistics reported today. Employment in the private sector rose, with modest job growth continuing in professional and businesses services, leisure and hospitality, healthcare and mining. Government employment continued to trend down.

The unemployment peak for the current cycle was 10.2% in October 2009. The chart here shows the pattern of unemployment, recessions and both the nominal and real (inflation-adjusted) price of the S&P Composite since 1948.

Unemployment is usually a lagging indicator that moves inversely with equity prices (top chart). Note the increasing peaks in unemployment in 1971, 1975 and 1982. The inverse pattern becomes clearer when viewed against real (inflation-adjusted) S&P Composite, with its successively lower bear market bottoms. The mirror relationship seems to be repeating itself with the current and previous bear markets.

Click to enlarge charts

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