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The Dow Is Surging, But Don’t Be Fooled by a ‘Record’ Jobs Report

Last Updated September 23, 2020 2:02 PM
Ben Brown
Last Updated September 23, 2020 2:02 PM
  • The Dow Jones Industrial Average (DJIA) surged during the final session of the holiday-shortened trading week.
  • Traders are cheering ‘record’ employment data, with 4.8 million workers added to payrolls in June.
  • Analysts urge caution. There are reporting issues in the data, and it doesn’t reflect newly re-fired workers.

All eyes are on today’s double-whammy jobs report. Beyond Thursday’s usual jobless claims statistics, the Labor Department published its monthly employment report. Wall Street cheered the blowout data, which likely explains why the Dow Jones Industrial Average (DJIA) is surging.

The Labor Department report revealed a record 4.8 million new jobs created in June . That’s the most since records began in 1939.

Jonathan Golub at Credit Suisse warned investors to take these ‘record’ numbers with a grain of salt .

If you’re comparing the change in payrolls… those look brilliant. However, if you then say, how many people are still unemployed and how long will it take to get them back employed? That’s a very high number.

The headline figures no doubt look impressive. Golub disagrees, stating we shouldn’t “extrapolate them too much.”

Under the surface, there are data-quality issues. A mass of newly re-fired employees aren’t included in today’s Labor report. The stubbornly high ‘continuing claims’ figure is missing too.

Dow jumps higher on jobs report data

The Dow Jones rallied back aggressively on Thursday from yesterday’s disappointing close. By 9:47 am ET, the Dow had surged 436.26 points or 1.7% to 26,171.23.

dow jones industrial average chart
The Dow Jones soared on Thursday morning. | Source: Yahoo Finance

The S&P 500 and Nasdaq jumped 1.54% and 1.49%, respectively.

Today’s Labor report is a “mess”

Bloomberg journalists Katia Dmitrieva and Reade Pickert aptly summed up the June employment report, stating:

There’s no way around it: Thursday’s U.S. labor reports will be a mess.

The reporters cite several ‘data-quality issues’ whereby out-of-work Americans have been wrongly classified as ’employed’  in the data. Fundamentally, today’s official rate is understating the true scale of the problem.

US unemployment chart
Half of the US population is now out of a job. | Source: CNBC

Despite the record numbers, we’re 16.6 million jobs short of the pre-pandemic level. Almost half of all Americans don’t have a job .

Has the stock market priced in re-fired workers?

Today’s Labor report misses one more crucial detail: business owners are firing workers for the second time .

Re-opening plans in California, Texas, Florida, and even New York are beginning to roll back. Bars, restaurants, gyms, and shops are laying off their employees again.

Today’s Labor report doesn’t include these figures because the survey was conducted in the middle of the month.

One data point that might give us more insight is today’s ‘initial claims’ count. This weekly number came in at 1.427 million – a number roughly seven-times higher than before the crisis began.

According to Mark Zandi at Moody Analytics, these aren’t just low-paid jobs.

Job losses are starting to bleed to other sectors of the economy, income groups and different skill sets.

Companies in all sectors across America are announcing layoffs in a bid to save cash coming out of this recession. Employment figures out of the eurozone this morning showed that jobless numbers are rising even as the countries exit lockdown .

The Dow Jones needs to look longer term

Jonathan Golub at Credit Suisse says investors may be cheering the short-term bump while ignoring the long-term pain of getting people back to work.

The real big issue is that the number of people who remain unemployed is about 20 million . And while a lot of these folks are going to get jobs relatively quickly over the next year, it’ll probably take three-to-four years or longer before everyone has been laid off is going to be back in jobs.

Golub is referring to the continuing claims count – a measure of how many people are repeatedly receiving unemployment checks. That figure remains stubbornly high, around 19.3 million. His words echo sentiment across an increasingly worried Wall Street that stocks no longer reflect the underlying economy.

And there are more headwinds on the horizon. The government’s Paycheck Protection Program (PPP), which is designed to keep people on the payroll, will soon end. That could see a wave of fresh layoffs as businesses decide to cut costs.

The extra $600 weekly unemployment check will vanish at the end of July, putting extra pressure on the newly out-of-work.

Today’s ‘record’ employment numbers may appear fantastic – on the surface. Don’t forget to zoom out and look at the big picture.

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author has no position in any of the stocks mentioned.