An odd thing happened last Friday after the Labor Department released its report showing that October’s jobless rate had jumped to 10.2 percent, marking the first time in more than a quarter-century that unemployment had reached double digits.
The stock market rose. True, it closed only marginally higher, but in the days since then, stock prices have continued to climb, reaching a 52-week high.
A few possible explanations for this come to mind. One is that the market must be truly irrational.
Another is grounded in the opposite belief—that investors as a whole are smart, and in the new data they saw something more than the highest jobless rate since the early 1980s.
Such as what? Here are a few possibilities:
- While jobs have not stopped disappearing, the pace continues to slow. Between November 2008 and April 2009, an average of 645,000 jobs disappeared each month. Since August, average monthly job losses have dropped below 200,000.
- The number of temporary workers increased by 44,000 in October, rising for the third straight month. This suggests that the 3.5 percent annualized growth rate of GDP for the third quarter is believable, because employers at the beginning of a recovery turn first to temporary help.
- Some sectors of the labor market actually are growing. Health care added nearly 30,000 jobs; the business and professional services sector as a whole expanded, as did education.
- This has been a very severe recession, but a strikingly small number of people have been hit hard. As the New York Times’ David Leonhardt wrote in an analysis of the new data, “the number of people (in this recession) who have experienced any unemployment is surprisingly low. … The main reason that the unemployment rate has soared is the hiring rate has plummeted.” What’s more, wages are up for most people who have not been laid off.
Finally, let’s not forget that unemployment is a lagging indicator. It should surprise no one that employers—especially small firms—are leery of hiring while still in the shadow of the worst recession since the Great Depression.
So perhaps the stock market knows something that many employers have yet to realize—that companies eager to gain a competitive edge in the recovery cannot sit on the sidelines forever.
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