Unemployment and the market

Today, I shall skip chatting about the 51.50 point loss in the STI by writing on a more interesting topic of employment.

Unemployment rates have increased recently and this tells a good sign. Economists use employment rates as a gauge of market conditions. When the economy is good, there is more work to be done, hence more jobs and a higher level of employment. In a downturn or recession, the opposite happens. Interestingly, as businesses take a little time to respond to market changes, there is a lag between the market and employment. Employment rates can hence be a lagging indicator of economic and market conditions. When unemployment rates show an all time high, i.e. employment is low, this will be a lag from a low in the markets. This implies that market lows are over and we can expect a better outlook. However, the assumption that employment has reached an all time low is questionable.

Globally, we see that hiring has slowed down and that businesses are keeping a tight budget for manpower. We can expect this phenomenon to sustain for the next 12 months as annual business cycles determine such measures.

I shall be covering the topic of "Inflation" in the coming days if the markets show no interesting signs. Today's big black candle does not affect my outlook as it is still within range of the market movements of the past 5 trading days.