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  • Financial Journalism Follies, Or How And Why Wallstreet Doesn't Care About Job Loss  [Edit or Delete]0 comments
    Apr 27, 2012 1:42 PM

    The ability to apply critical thinking should be a prerequisite for any analyst or journalist.

    The overuse of qualifiers and haphazard use of generalizations or omissions in disregard of contrasting empirical evidence is abundant in a lot of financial writing. The most befitting or logical outcome to an event isn't always the correct because macro economics may be the gloomy science, but it's also the most counterintuitive one, too.

    Here's The Ominous Jobless Claims Chart That Scares The Crap Out Of Everyone

    Read more:

    Umm Wallstreet must be so scared about job loss that the major indices serendipitously closed higher yesterday while claims hit multi-month highs.

    Nobody likes to see jobless claims trending up. However, what makes this trend particularly terrifying is that it reminds us of last year, when jobless claims shot up in the spring. This preceded a memorable stock market sell-off

    Then why did stocks close higher? Why did the DJIA close 1.5% higher last Thursday on a similar bad jobless claims report? Apparently those people who 'don't like to see jobless claims trending up' must have slept in or something.

    He's wrong on the second part, too. According to the charts, stocks his an apex on April-May 2011 around the same time as weekly initial claims peaked, and as initial claims fell so did stocks until around October when stocks rebounded and jobless claims still fell. Based on this evidence it would be wrong to say that the market fell from May-October 2011 because of weak labor numbers, hence the author's fears are unfounded. The exact opposite seems to have happened; stocks fell as jobless claims fell.

    Even after six consecutive months of strong job claims numbers, the DJIA was still 1300 points lower on October 2011 than in May 2011.

    From HuffingtonPost April 28th, 2011 (the DJIA was around 12700, a multi-year high, when this story broke)

    New U.S. claims for unemployment benefits surprisingly rose last week to their highest level since January in a sign an anticipated recovery in labor markets may take time, a government report showed on Thursday.

    Initial claims for state unemployment benefits jumped 25,000 to a seasonally adjusted 429,000, up from a slightly upwardly revised 404,000 the preceding week, the Labor Department said. Economists polled by Reuters were expecting claims to slip to 392,000 from the previously reported 403,000.

    From October 20th, 2011 ( Dow Jones Industrial Average closed at 11542 )

    Applications for U.S. unemployment benefits have fallen to a six-month low, according to a four-week averaged calculated by the government.

    So why did stocks rally into worsening job data, and why did they sell-off as the job picture improved?

    Unlike Japan, which has wallowed in economic misery for more than two decades since its own real-estate bubble burst, the U.S. economy is still the most dynamic and innovative in the world. Things like surging gas prices, structural unemployment, and accelerating wealth gap are byproducts of a strong economy. Too many jobs created means smaller profits, no QE, and technological stagnation. By this logic, these unemployed people help economy more than they would if they had jobs. To someone not versed in dyseconomics this premise is nonsense but the empirical evidence supports it.

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