We have heard conflicting views of whether unemployment is a "leading" or "lagging" economic indicator.  We will let you be the judge, here are the facts.







ANALYSIS:

First of all, we need to remove the so-called 1987 crash from the equation.  Although there are some short-term similarities we are soon going to find out how different our current situation is.



Next, we need to see the clear inverse relationship between unemployment and the cash position of the companies where investment money was heading.  We have a term called "convenience spending", where employers will hire in times of plenty in order to leverage time.  However, in tight spending environments they will do the work themselves instead of risking lost profits.  The 1929 graph is clear and although the DJIA stabilized at a significantly lower level, unemployment was on the mend before we entered WW II in the summer of 1942.  Our 12 year chart proves this ending in the summer of 1941.

In 1929, month over month, the 37% drop in the DJIA was met by a rapid "V" shaped rally that bounced over 20% in a four month period before dropping again.



Next, we can easily see the results of a promised $800 Billion plus, being pumped into the system.  People will act and plan very differently based upon getting a healthy loan; including some not so good decisions, (ie. lavish corporate meeting at tax payers expense).  It is our opinion that government lead stimulus has only delayed the inevitable, extending the first trip down and lengthening the rally.




Only time will tell but current unemployment predictions would lead us to believe that the DJIA has some catching up to do... going down; and as the path would suggest it will be rather steep.

DECEMBER/JANUARY UNEMPLOYMENT UPDATE

With unemployment stabilizing and the markets flattening we need to take a look at what it will take for us to get back to a reasonable unemployment number.  Throughout the 1970's the DJIA was basically flat around 900.  Then 15 months before the peak of unemployment, repairs were being made in the private sector and a bull market began in the DOW.

If you can ignore the the 1987 bubble, the overall trend doubled the DJIA to 1800 before we fell below 6% unemployment.  You can see that we in fact did experience a rise in unemployment at the same time that the market was trending higher.  However, this bull market was not catalyzed by a rebound from an overly emotional major sell off.  It is rather smooth and trustworthy.

Remember that jagged lines indicate a trend that is out of control and not trust worthy.  Unemployment is a much smoother trend line, because the decision to hire or fire is much more deliberate compared to exchanging money in the markets.  Ultimately, the trend of unemployment will show the markets true colors.

Let's take a peak at the small bear market that began in 2000.

Our circle points out a time when the market was gaining unemployment was stabilizing (but not dropping) and the market corrected itself.  Despite efforts by many to force rallies, unemployment will give you a much clearer picture than the markets for true trends.  In the 13 months Dec. 2002 to Dec. 2003 we averaged 6.0% unemployment.  The DJIA averaged 8966 during the same period.  This was only SEVEN years ago.  Even with a huge inflation calculation added to the market over the last 7 years, it seems impossible to show support for current market levels.

It would seem logical that if we were only able to sustain a DJIA of 9000 at 6.0% unemployment, that we should only be able to support a DJIA of 3000 at 10.0% unemployment.  10% is 66% higher and 3000 is 66% lower based upon a direct correlation.  Which amazingly enough is TWICE the DJIA in 1986 when we recovered from the last time in history we had 10% unemployment.  Would most of us feel satisfied to have doubled our investment money in 24 years?  How do most people feel about collecting 4.17% APR right now?

Our conclusion, this market is due a large correction.  Be prepared as many major hidden financial situations come to light, both in the private and public (governmental) sectors.

04 JUN 2010 - UNEMPLOYMENT RATE RELEASED
Unemployment dropped to 9.7%.  However, of the 431,000 new jobs, 411,000 of them were temporary census worker positions.  These jobs will be dissolved by the end of the summer.  The real unemployment rate also decreased to 16.6%.

TODAY - 02 JUL 2010 - UNEMPLOYMENT RATE RELEASED
Unemployment dropped to 9.5%.  HOWEVER!!!  625,000 people gave up!  They left the workforce all together.  No more unemployment check and no more hope.  So even though we showed a NEGATIVE 125,000 jobs this month, the rate still dropped.  Unfortunately, foreclosures will only continue to increase and the housing market as a whole will only get worse unless we get Americans working again.

This as well will not last unless WE do something to help.  With the rate that governments are burning through cash and increasing debt it is time that "we the people" take control of this economy.  Support the "Make a Million Jobs" campaign on Facebook.