The job market is getting worse. So why are stocks booming? |
It’s getting harder to find a job and easier to lose one.
Employers are hiring workers at a steadily lower rate while laying them off at a rising one, according to data from the Chicago Federal Reserve. The unemployment rate has been ticking up, and job growth has been slowing.
This said, our picture of today’s labor market is blurry. With the government shut down since October 1, our best economic data is out of date. But this week brought large layoffs at a long list of major companies. About 14,000 workers were let go from Amazon, 48,000 from UPS, 25,000 from Intel, 15,000 from Microsoft, and 11,00 from Accenture.
And yet, even as corporate America rains pink slips on its workforces, stocks keep hitting record highs.
This disconnect may seem curious. After all, slowing job growth can be indicative of an impending recession. And when people lose their jobs during a downturn, they have less money to spend on goods and services — which translates into weaker profits for corporations.
Conversely, if companies’ stocks are doing gangbusters, you’d think they’d feel less pressure to cut jobs.
So, what explains why the labor market looks ominous, even as Americans’ 401(k)s look splendid?
There are two primary reasons:
1) Wall Street can enjoy a little unemployment, as a treat
To an extent, stocks aren’t doing well despite the slowdown in job growth but because of it.
Recessions are bad for stock values. But a small uptick in unemployment can actually be good for them — at least, at a time of elevated inflation.
This is largely because of how Federal Reserve policy influences the stock market.
America’s central bank has a dual mandate: to promote price stability and full employment. Specifically, the Fed aims to keep the inflation rate at about 2 percent.
When the Fed is primarily worried about inflation,........