Now if you asked me last week how the markets would react to the headline “Europe Posts Record Unemployment,” I would probably have guessed that it wouldn’t have been very pretty. However even though this exact headline showed up on everyone’s news feeds this morning the major indices were barely fazed by this.
How can this be? The fact is that at face value the details weren’t very good. This morning, Eurostat announced that the jobless rate for the euro area hit a record high of 11.1% or 17.6 million people. In May the pool of unemployed increased in 18 Eurozone countries and fell in eight member states. Currently, Spain has the highest unemployment rate of 24.6% while Greece comes in second at 21.9%.
Even so, this wasn’t enough to derail the major indices after Friday’s record-breaking rally and that’s because investors are still excited about the new debt plan worked out at the end of last week. As a refresher, this plan would bail out banks via a regional bailout fund—which will not add to the sovereign debt of those countries. They will also ease austerity cuts that have been the main reason for protests and political upheaval in countries like Greece.
So there’s some optimism that this represents a new direction for Europe. And the fact is that as important as unemployment figures are, they are a lagging indicator of economic growth. Basically, it takes some time for businesses and governmental agencies to react to the latest economic data so they’re slow to create jobs even when there is improvement.
Speaking of unemployment figures, we’ll be receiving the next round of data on the U.S. jobs market this Friday around 8:30 A.M. E.S.T. Currently economists expect 8.1% unemployment for the U.S., which certainly is an improvement over the euro area. Economists also estimate that 100,000 net jobs will be created, representing an uptick from the 69,000 jobs created in May. This will undoubtedly be a market-moving report and I will have the full details in this blog immediately following the release.