What to Make of the 3.9% Jobless Rate (You Might Be Shocked)
Economic data numbers don’t lead the stock market – they LAG it
by Bob Stokes
Updated: May 09, 2018
You might be shocked to learn that a milestone low in the unemployment rate is usually a sign that an economic downturn is just ahead -- not a continuation of an upturn.
You probably heard the recent news that the April 2018 unemployment figure came in at 3.9% -- a rare low that was last hit in December 2000.
But, stop a moment to think about what was happening at that time. Stocks were already in the midst of a bear market that had started almost a year earlier, in January 2000, and the DJIA would eventually surrender about 40% of its value through October 2002. Moreover, a recession started just three months later, lasting from March 2001 through November 2001!
But, let's explore the historical data further, courtesy of this Fed chart which goes back to 1948 and takes us through that 3.9% jobless rate in April 2018:
Notice that recessions, which are shown in the blue-shaded areas, followed nearly all significant lows in the unemployment rate! This is just the opposite of what most people would expect.
Indeed, the jobless rate in May 2007 was a relatively low 4.4%. Just four months later, stocks topped and the economy eventually went into the worst downturn since the Great Depression. What's more, as a side note, the stock market bottomed in March 2009, and the jobless rate hit a recession high of 10% in October 2009.
There is an explanation: Economic numbers follow the stock market. In other words, the April 2018 glowing jobs report is what to expect after a prolonged stock market rally like the one we've had since 2009. Put yet another way, jobs figures should be viewed as an effect of what's already occurred, not an indicator of what's ahead. If anything, you should be taking it as a bearish indicator -- history certainly has enough evidence to support this view.
Indeed, most other financial and economic developments are also reflections of what's already occurred.
So, what does create the market's trend?
The answer is investor psychology, as reflected in the Elliott wave model.
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