Weekly Market Insights
…in Plain English!
August 11, 2009
785-228-0222
The Markets – Did Unemployment Really Fall?
Reports last week showed that as a country we shed another 250,000 jobs in July, yet the
unemployment rate went down to 9.4% and the market went up. How did that happen?
Well, the reason for the market going up was that the consensus expectations were that we lost around
325,000 jobs in July, which were quite a bit more than what the government reported were lost. This of
course caused people to start buying since things were not as bad as expected. We would, however,
caution that just about every previous month’s job reports have been subsequently revised to show
more job losses than originally reported and there is the chance that this could happen with last month’s
jobs report as well.
The probably bigger and more intriguing question is, how did we lose 250,000 jobs last month and
unemployment go down?! The answer lies in the math, some of which is quite questionable.
You see the way unemployment is calculated is by taking the # of unemployed and dividing it by the
‘labor force,’ not the entire population. The labor force is defined as people that are working + people
that want a job but don’t have one. What the government basically said happened last month was that
although we lost 250k jobs last month (number of employed people dropped by that much), the labor
force shrunk by more than that making the unemployment rate lower. Here is an example:
•
•
•
19 people are unemployed out of 200 in the labor force = 9.5% unemployment rate
1 of those unemployed individuals leaves the labor force
18 people are unemployed out of 199 in the labor force = 9.0% unemployment rate
This also explains why the percent of those unemployed decreased at a greater rate than the labor force
(1/19 = a 5.2% drop in the # unemployed, but 1/200 = a 0.50% drop in the labor force).
The shady thing about this is how the government calculates who is unemployed and who is in the
labor force. The thing is that once you become unemployed long enough the government just no long
considers you unemployed or part of the labor force. Even if you do want to work but have been
unemployed for more than 52 weeks, the government says you actually aren’t unemployed and actually
aren’t part of the labor force. The number of people falling in this category are well over 5 million and
growing. Growth in the number of these types of individuals is likely how the unemployment rate went
down even though we lost 250,000 jobs.
Perhaps a bit better of a view of unemployment might be the # of people working as a % of the entire
population. That graph is below and the trend does not look so good…
Returns through 8/7/09
Dow Jones Industrials
Standard & Poor’s 500
Nasdaq Composite
1-Week
2.27%
2.38%
1.04%
Y-T-D
8.99%
13.61%
34.26%
1-Year 2008 5-Year*
-15.21% -31.92% 1.63%*
-18.02% -36.99% 1.03%*
-13.25% -41.57% 4.77%*
Source: Bloomberg. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. *Returns are
total returns, except the 5-yr return, which is an average annual.
College Degrees – Which is the Highest Paying?
With it being the ‘Back to School’ time of the year we thought this week we would focus a bit on
college degrees. What has to be the most asked question to anyone that is about to go to college,
considering college, just started college, or in college is “What are you majoring in?”. A lot of the time
the answer to that question is “I don’t know yet, I’m still undecided.”
If you have a kid or grandkid that falls into that category you might want to have them check out the
following graph that shows the top 10 college majors that lead to the highest average salaries.
Engineering pretty much dominates the list with 7 of the top 10 spots. It is interesting to note that ALL
of the majors that are in the top 10 are VERY math-heavy, even the 3 non-engineering ones. For a
complete list of all majors and some other pretty cool college information we suggest you hop on over
to:
http://www.payscale.com/best-colleges
Note: The above video link is provided for reference only. We do not endorse or assume responsibility for the accuracy or appropriateness of the information contained
in the above reference link.
In addition to the full list of majors and their average salaries they also have a list of most popular jobs
by major, most popular schools by jobs, best salary potential by school location and much more.
Fun Focus – Hot Waitress Index
There are many ways today to measure where we are at in an economic cycle. Things like GDP,
unemployment, housing starts, etc. are indicators used all the time to do such things. One indicator you
may not have heard of and is just starting to catch on is the Hot Waitress index.
Hugo Lindgren, who has developed the index, has the theory that “The hotter the waitresses, the
weaker the economy.” The reasoning goes that attractive people land great jobs in sales…when there
are jobs in sales. When the economy contracts, they trade down to waiting tables.
Lindgren spoke to one waitress at a club on the Lower East Side, who told him, "They slowly let the
boys go, then the less attractive girls, and then these hot girls appeared out of nowhere." But he also
points out that hotness only goes so far. "Rare indeed is the waitress who is so smoking that customers
don't mind when she drops a glass of Cabernet into their laps.”
Lindgren claims the Hot Waitress Indicator is actually a leading indicator since attractive people will
migrate back to better jobs sooner than not-so-hot auto workers. So when you see the hot waitress go,
it's time to feel good, not bad as the economy is rebounding.
Finally, Lindgren points out other indices apart from the government’s Bureau of Labor Statistics
which measure economic ups and down: The Overeducated Cabbie Index and, my favorite, The Speed
at Which Contractors Return Calls Index- "within 24 hours, you're in a recession; if they call you
without prompting, that's a depression."
Best Regards,
Roger, Ryan, Susan & Mary Ann
The Professionals at Retirement and Tax Solutions
Securities offered through NEXT Financial Group Inc., Member FINRA/SIPC. Advisory services offered through Next Generation Investing, LLC.
NEXT Financial Group Inc. is not affiliated with Next Generation Investing, LLC or Retirement and Tax Solutions.
* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.* The Dow Jones Industrial
Average is a price-weighted index of 30 actively traded blue-chip stocks.* The Nasdaq Composite Index is an unmanaged, market-weighted index of all over-thecounter common stocks traded on the National Association of Securities Dealers Automated Quotation System.* Past market performance data is from Reuters and
Bloomberg.* Opinions expressed are subject to change without notice and are not intended to be advice about investments or to predict future performance. * Consult
your financial professional before making any investment decision. * Past performance does not guarantee future results.