The unemployment rate represents the percentage of the total workforce, between the working ages of 15-64, who are unemployed, but who are actively seeking work, in a specified period (monthly or yearly usually). It is calculated by dividing the number of unemployed individuals by those currently working, in a specified period. This is a closely watched measure for governments around the world, because it is a key gauge of how economies are performing.
A very low unemployment rate signals a strong economy and is used as a barometer for wage inflation and capacity utilization. A very high unemployment rate is a sign of a weak economy, including slacking capacity and falling wages.
We are seeing some signs of selling in the global markets.
In Japan, the overblown Nikkei 225 retrenched 1.45% last Tuesday after traders were disappointed that the Bank of Japan (BOJ) failed to offer up new stimulus. Sound familiar?
Just like in the U.S., the economic renewal and surge in Japanese stocks is being driven by the availability of easy money—and traders want more of it. The BOJ’s non-move to inject more stimulus clearly supports my view that the stock market is dependent on easy money.
On this side of the Pacific, there’s concern the Federal Reserve may begin to reduce its bond buying as early as after next week’s Federal Open Market Committee (FOMC) meeting. Of course, I doubt that will happen, given that the unemployment rate increased to 7.6% in May and jobs creation remains tepid.
As long as the Fed pumps money into the system, the stock market will edge up higher. But we all know that the easy money will inevitably come to an end and that bond yields will rise.
You can already see it in the current action of the bond market, where bond yields across the board have been inching higher on the speculation of reduced stimulus.
The speculation is driving up bond yields, raising 30-year bonds to 3.427% last Tuesday.
Bond yields on the 10-year U.S. government bond jumped upward to 2.24% last Tuesday, which is up 68 basis points year-over-year—including a whopping 37 basis points in a month. (Source: “Rates & Bonds,” Bloomberg, last accessed June 12, 2013.)
The chart for the 10-Year U.S. Treasury yield is featured below:
Chart courtesy … Read More
There continues to be much speculation over when the Federal Reserve will begin to reduce its asset purchase program and lower the level of monetary stimulus. The biggest concern for both the Federal Reserve and the nation is the level of job creation.
Last week, the Bureau of Labor Statistics (BLS) released its monthly report on the level of non-farm job creation, which was as expected: neither too hot nor too cold, with a total of 175,000 new jobs created for the month of May. (Source: Bureau of Labor Statistics, June 7, 2013.)
With the unemployment rate at 7.6%, this level of job creation is still not good enough for the Federal Reserve to begin aggressively reducing its level of monetary stimulus. The truth is that gross domestic product (GDP) growth needs to be stronger for job creation to increase. The underlying fundamentals of the economy are much different than the headlines.
What will surprise many to learn is that one of the biggest drags on the economy is the lack of skilled workers. There are constant reports from companies that they simply can’t find enough skilled workers.
This matches up with the data, as the BLS reports that for those people with a bachelor’s degree or higher—approximately 50 million citizens in the labor force—the participation rate is almost 76%, with the unemployment rate at just 3.8%. Essentially, this part of the economy is at full employment.
Job creation has been extremely strong for those workers with a higher education. If you don’t believe government statistics, simply look at what companies are doing. This year alone, H1B visa applications, which … Read More
It sure doesn’t take much to get this stock market excited, which we have seen over the past six months as stocks have edged higher in spite of any concerns regarding the fiscal cliff and the sequestration. Even a potential stock market bubble in Japan is being pushed aside.
So, when the non-farm jobs market reading came out last Friday and the stock market surged upward, I was wondering what was wrong with the mentality of traders. Personally, I was underwhelmed with the results from the jobs market.
It’s true that we saw a slightly better-than-expected non-farm jobs market report, with the creation of 175,000 new jobs in May. This reading was above the Briefing.com estimate of 170,000, and the downward revised 149,000 new jobs created in April. I think the market was just happy that the reading didn’t disappoint, but the fact is that it was not a blow-away reading. Something in the neighborhood of over 200,000 new jobs would have sufficed to make me think the jobs growth was on the right path; in reality, the reading was only average, and I didn’t bother to take a second look. There were 11.6 million out of work, according to the U.S. Bureau of Labor Statistics.
Wall Street may be pleased with the jobs market. Maybe it was because the unemployment rate edged up to 7.6%, which is not great, but is much better than the over 12% unemployment in the eurozone and the 26%-plus in Spain and Greece; however, ours is nowhere near what we can call a healthy jobs market.
It will take time for the jobs market … Read More
There is much discussion on China and the impact of stalling on the global economy, yet the region that really needs to be monitored is Europe and the eurozone.
While China is still growing its economy at a seven- to eight-percent clip and is tops among the G8 countries in the global economy, Europe continues to look for any reason for optimism given its recession and the fact that six of the 17 eurozone countries are in a recession. Greece, for instance, reported a horrific unemployment rate of 26.8% in March, while to the West, the Spaniards are facing unemployment of 26.7%.
The Organization for Economic Cooperation and Development (OECD), in its semi-annual Economic Outlook, suggested the dire situation in Europe is a threat to the global economy. (Source: “Global economy advancing but pace of recovery varies, says OECD Economic Outlook,” OECD web site, May 29, 2013, accessed June 7, 2013.)
A look at the Dow Jones STOXX Europe 600 Index, featured in the chart below, shows the rally from the bottom in 2009; however, I personally wouldn’t be a buyer, and I advise you to look to Asia for your foreign exposure.
Chart courtesy of www.StockCharts.com
Then there’s Mario Draghi, the President of the European Central Bank (ECB), who at the central bank’s monthly press conference last Thursday, raised his gross domestic product (GDP) estimate for the eurozone to 1.4% for 2014, following a 0.6% contraction this year. (Source: Bishop, K., “ECB Holds Rates and Cuts Growth Forecast,” CNBC web site, June 6, 2013, accessed June 7, 2013.)
I really cannot understand how the ECB expects a turnaround to … Read More
The stock market is setting record after record and there appears to be nothing in its way. Yet as many of you know from reading these pages, while I continue to enjoy the rally, I am also preaching caution.
The Organization for Economic Cooperation and Development (OECD) came out with its semi-annual Economic Outlook report, and it has painted a mixed landscape for the global economy. The findings are really not a surprise, but they do seem to be things the stock market has ignored. I mean, why is the Nikkei up 70% over the past six months?
Sometime down the road, there needs to be some reasoning when looking at the current momentum in the stock market. I still think the stock market is moving too high too fast.
The OECD suggests the recession that has gripped Europe is a threat to the global economy. (Source: “Global economy advancing but pace of recovery varies, says OECD Economic Outlook,” Organization of Economic Cooperation and Development web site, May 29, 2013.)
The eurozone economy is estimated to contract 0.6% this year, followed by a 1.1% rebound in 2014, according to the OECD. My feeling is that the estimate for 2014 might be overly optimistic, as the region has a lot of work ahead of it and could be headed for another disappointment.
Gross domestic product (GDP) growth in the U.S. is estimated to rise 1.9% this year and 2.8% in 2014, according to the OECD. That’s fine, but it’s nowhere near the levels we need to drive significant jobs growth.
Crossing the Pacific, Japan’s economy is estimated to rise 1.6% this … Read More