Stocks Surge on Good Unemployment Data

by John M. Curtis
(310) 204-8700

Copyright March 3, 2011
All Rights Reserved.                               

               Rocketing up over 191 points, the Dow Jones Industrials gave back last week’s losses on the Labor Department’s drop to 368,000 of first-time unemployment claims. While everyone cheered today’s run-up, last week’s 300-point sell-off still plays on investors’ minds.  Last week’s losses—based on unrest in Libya—are nearly erased by this week’s gains, making for seesaw market, characterized by rapid buying and selling frenzies.  With former Goldman Sachs director Rajab Gupta charged with insider trading in a case involving his hedge fund-trading friend at Galleon Management Raj Rajaratnam, it exposes Wall Street’s tightly controlled buying and selling patterns, so often attributed not to profit-taking but miscellaneous domestic and world news events.  Wall Street’s publicity machine blamed last week’s sell-off on Libya’s political problems, not profit taking.

            Most experts believe the U.S. economic recovery is tied to Wall Street, serving as an engine of cheap capital for American business.  Without Wall Street’s cash-machine to American business, publicly-traded corporations can’t generate enough cash to expand payrolls selling goods and services.  Long-term bull markets require Wall Streets to stay long in the market, namely, avoid the kind of sell-offs where hedge and private equity funds short the market, actually profiting during market downturns.  Short-selling by hedge and private equity funds drove the market to new lows following the 2008 financial crisis, robbing stock-dependent companies of the cash needed to sustain payrolls.  Only recently, nearly three years into the worst recession since the Great Depression, have publicly-traded companies regained the market capitalization needed to expand payrolls.

                White House economists know that only by expanding payrolls can the government reduce its $1.5 billion deficit, promote consumer spending and increase the Gross Domestic Product.  Newly minted House Speaker John Boehner (R-Ohio) and his band of Tea Party conservatives believe the way to attack the deficit is by cutting $60 billion from government spending.  Federal Reserve Board Chairman Ben S. Bernanke warned an overly zealous Congress that steep budget cuts could undermine economic growth.  Bernanke has advised Congress that the best way to grow the economy is by promoting more private sector jobs.  Decreasing unemployment reduces the deficit by expanding government tax receipts.  More jobs translate into more consumer spending, which, in turn, convert into measurable improvements in the nations GDP, including increasing in manufacturing.

            Showing signs of adding more jobs, the Institute for Supply Management indicated private companies hirre more workers since the end of the hiring boom in 2007.  ADP services confirmed that the private sector added more jobs, dropping the nation’s unemployment rate to 8,9%, the lowest since 2009.  Adding 222,000 jobs in February surprised many economists, since last month’s rise to 10% was attributable to inclement weather, especially in the South and East Coast.  Yet despite all the good news, the stock market gave back some of yesterday’s gains, proving that profit-taking, not national or global news, rules Wall Street.  “These numbers can be sustained and built on,” said economist Joel Nanfoff of Nanoff Economic Advisors, believing, like Fed Chairman Bernanke, that the economic recovery is real.  Only those with an obvious political agenda believe otherwise.

            Given the improved economy, rising pump prices threaten to pull the rug out from the upward momentum.  Berenanke hasn’t listened to his colleagues across the pond keeping the Federal Funds Rate at zero to .25%.   Frankfurt’s European Central Bank has gone in the opposite direction, moving rates higher.  Moving rates higher strengthens the Euro against the U.S. dollar and hurts European exports, now more costly.  Worried about growing deficits and financial defaults in several Eurozone countries, the ECB continues to reinforce the Euro.  “The economy is recovering, there’s no question about it.  Businesses are finally taking some of those profits they are earning an putting them back into the work force,” said Nanooff, not giving Wall Street enough credit for providing fresh market capital to publicly traded companies.  Recent job gains cut across several economic sectors.

            Adding 33,000 factory jobs, 43,000 in Education and health care, 47,000 in business services, 21,000 in leisure and hospitality, 33,000 in construction and 22,000 in transportation all point to better days ahead.  Like most recessions, a growing stock market helped provide publicly traded companies sufficient cash to begin adding to payrolls.  While there’s a long way to go to replace the 7 million jobs lost since 2007, today’s employment numbers give reason for hope.  Obama’s enemies now must shift gears again, trying to hit a moving target that’s delivering on the economy.  Before Boehner and the GOP House slash spending, they should consider Bernanke’s advice and how improved unemployment reduces budget deficits.  Slashing spending, in or out of government, adds to the unemployment rate, working at cross-purposes to the Fed’s attempt to stimulate the economy.

About the Author

John M. Curtis writes politically neutral commentary analyzing spin in national and global news. He's editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.

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