As unemployment is a lagging economic indicator, significant growth in employment figures means that a recovery is well under way – lack-lustre data means that we are still in an anaemic recovery phase. The world’s largest economy, the USA, had championed global hopes earlier this year with better than expected job creation data against the backdrop of a slow-down in the global economy. That recovery has stuttered and fizzed, but of late, the figures have failed to inspire markets.
Given the angst caused by the financial situation facing Spain where higher borrowing costs for government bonds have again raised the spectre of bailout and the on-going Greek drama which is set to play out for at least another couple of weeks, investors were hoping for better job numbers out of America. In the event, the US economy managed to generate 69000 new jobs in May which is the slowest rate of improvement seen for a year and was well below the projections of most analysts. The unemployment rate ticked up to 8.2% for May from 8.1% in April meaning that more jobs were lost than created in simple terms. The US economy has contracted by five million jobs since the global financial recession struck.
The news of the US employment situation sent markets lower (as if they needed an excuse in the current climate) with the Dow Jones Industrial Average down by 2.2%; the Dax by 3.4%; the ac by 2.2% and the FTSE by 1.1% on Friday. The weekend brought nothing positive, so markets have continued to fall on Monday. The positive side of this situation is that some stocks are becoming cheap – all economic cycles end and the art is to “buy low and sell high”; mind you, nerves of steel would be needed to do this right now.