Economy Recovery (Again)? Not.
(February 3, 2002)
The big news on Friday was the decline in the unemployment rate from 5.8% in December to 5.6% in January. Subsequent calls for the end of the recession were heard. The bulls' case was further compounded from this ECRI press release (check our 1/27/02 comments for our take on the ECRI numbers).
As with the ECRI call, we are also pretty skeptical of this one. A mere glance at the numbers provided the necessary insight.
First of all, the employment-population ratio dropped by 0.4% to 62.6%, dropping by 587,000 to 133.5 million for the month of January. And: "Over the past 12 months, the number of employed persons has declined by 2.4 million and the employment-population ratio has fallen by 1.8 percentage points." So total unemployment continues to rise.
The cause of the drop in unemployment rate was a significant decrease in the labor force, down 924,000 in January. These people just stopped looking for a job, period. No doubt, a significant portion of this group would be the unemployed counted during last month report (337,000 as a matter of fact).
What matters to our economy is really the employment-population ratio. Unemployment could drop to 3.8% again if we don't count another 1.8% as part of our labor force, but will it matter? Hence, the term: "lies, damn lies, and statistics." We have still yet to see any solid data of an upcoming economic recovery. Obviously, the fact that the CEOs of the world's largest and the second largest company (by capitalization) do not see any upcoming recovery does not give me too much confidence.
Finally, a chart on the stock market. Guess what the following shows:
The top line is the Dow Jones during the period from January 18, 2001 to February 27, 2001. The bottom line is the Dow Jones during the period from December 21, 2001 to February 1, 2002 (last Friday). The correlation between the two lines is eerily similar, isn't it? Recall that from February 27 to March 22, 2001, the Dow Jones declined approximately 1,300 points.
Now, this may be just a coincidence. In fact, one can probably find another time period where the stock market movement is pretty similar where trading during the subsequent period was not meaningful. If one assumes, however, there we are due for a pretty significant decline in the weeks, however, then the above chart becomes quite meaningful.