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U.S. Unemployment Report Disappoints

07/08/2011

The U.S. unemployment report released Friday, July 8, delivered a major disappointment to Main Street. Wall Street's response will be to halt the significant appreciation that risky assets have traced out since the morning of June 27. From a technical market perspective, however, there has been enough appreciation since the end of June to suggest the market has stabilized the correction that began on May 2.
 
Over the next few days, I expect policymakers in D.C. to formulate some type of stimulative fiscal policy response. Whether it is the repatriation of overseas profits or an employer tax holiday, the conversation shall intensify. Investment banks will suggest "risks" to their respective forecasts for second half U.S. GDP.
 
I expect corporate earnings will now be, and should be, the market's main focus.
 
 
JUNE U.S. UNEMPLOYMENT FIGURES:
•         Unemployment rate rose to 9.2%, from 9.1%
•         Headline figure rose 18,000, well below estimates of +105,000
•         Private sector jobs rose 57,000, well below estimates of +130,000
•         Underemployment rate rose to 16.2%, from 15.8%
•         Headline figures for April and May were revised down 44,000 collectively
 
 
COMMENTARY:   Overall, an extremely disappointing report with broad-based weakness throughout. This report is further evidence that unemployment in the U.S. has structurally changed in the wake of the 2008 Great Recession. Since September 2008, the unemployment rate has averaged 9.0%. The 40-year average unemployment rate now stands at 6.4%; it will be many years before we see that rate again.
 
 
S&P 500® Index, August 2, 2010 to July 8, 2011

Source: Bloomberg
 
U.S. Unemployment Rate, September 2008 to Present 

Source: Bloomberg
 
U.S. Unemployment Rate, July 1971 to Present

Source: Bloomberg

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