The national unemployment rate surged a half a point to 5.5 percent in May, signaling the largest increase since 1986 and far surpassing analysts' expectations, according to Bloomberg. To show how surprising these numbers were, not a single analyst forecasted the unemployment rate to go this high, and the consensus among the analysts was an unemployment rate of 5.1 percent, according to a Bloomberg news survey.
The funny part about this is that just yesterday, people were starting to feel better about the prospects for the economy. In fact, this was the headline on YahooFinance yesterday afternoon: “Wall Street shrugs off spike in oil and finds solace in upbeat jobs data, retailer sales.” Yesterday the Dow was up almost 214 points, the biggest one-day gain since April 18, according to the Associated Press. The great jobs news everyone was excited about was the drop in number of laid-off workers seeking unemployment benefits. Oh, how the economic winds can change.
After today’s job data, and with the price of oil continuing to surge, the markets shed (in less than an hour, I believe) all of yesterday’s gains and then some. Once again this is evidence of how traders cling to every little glimpse of good news and look past the big picture. If people would have just sat back and thought things through, they would have seen that the jobs outlook in the U.S. is not a rosy one. The data that was reported yesterday is a bit misleading. Just look at report after report after report about how business owners are hesitant to add jobs right now and how many of them are actually planning to cut staff. Read about how consumer confidence continues to slide and how housing prices continue to tumble. A report from CNNMoney stated that Americans lost $1.7 trillion from their collective net worth in the first quarter of 2008 alone. Does any of this news seem to make a case for businesses to bring on additional workers? All I’m seeing are reports of pending layoffs. Am I missing something?
GM is cutting 19,000 workers by July 1; Ford and the other auto companies are also trimming staff, according to Bloomberg. While the government actually added 17,000 employees, cuts are on their way in the local governments (see the previous post: Pension Plans Could Lead More Cities To Bankruptcy), and of course home builders are continuing to cut workers as they fend for their livelihood. These are just a few of the headlines. So the fact that people were getting excited because one piece of data was published tells me they so desire good news that once they have it, they lose sight of everything else.
While it might be okay to believe the economy is coming around and is on the right track (not my belief, but hypothetically speaking), even if that is true, it is going to still require some time. Problems like we have now don’t just disappear overnight, and the investor reaction to yesterday’s news was way overblown. As an investor, make sure you understand and can see the big picture. I’m not saying, you shouldn't invest, but that you should do so with your eyes open. Don’t be like everyone else out there throwing your money into the market at the first glimpse of hope, only to pull it out the next day when things don’t look so hot anymore. Investing with a long term focus can help solve this problem for the most part, and overall is a great strategy, but don’t lose sight of the big picture.