A Silver Lining

Story Highlights:

• US unemployment increased 0.4% to 7.6% in January—roughly in line with economist expectations of 7.5%.
• The economy's lost a total of 3.6 million jobs, the most since the 1930s. But the work force has grown significantly since then, making such a comparison less meaningful.
• Historically, unemployment tends to spike after both market and economic recovery get underway.

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Today's unemployment report was grim indeed. Further, investors shouldn't expect to hear great news on the employment front for some time—historically, a recovery in employment has lagged the economy which lags the market. Said another way: Investors who wait for employment data to confirm a bullish outlook risks missing the traditionally meteoric rise of nascent bull markets.

Nonetheless, a weak job market hits closer to home than almost any other economic news does—so naturally we take note. And news today was underscored with historic comparisons—the most jobs lost since the 1930s. Though the news isn't very sunny, it's always best to put everything in context. The report was largely in line with the expected 7.5% rate—which is elevated relative to recent years, but by no means historically unusual. Unemployment has routinely reached such levels during past recessions.

So if the overall rate isn't actually historic, what about the total number of jobs lost so far—about 3.6 million, the most since the 1930s? Remember, the job force has grown tremendously since the 1930s—even since the early 1980s, or the last big recession. Proportionately, 3.6 million jobs lost doesn't mean nearly as much today as it did back then. For comparisons sake, it's better viewed as a percent of the work force. We'd need to start hitting an unemployment rate of over 20% to even come close to Great Depression levels—the specter frequently and arguably inaccurately raised in media—something we're nowhere near yet.

It's impossible to predict how many jobs will be lost before this recession turns the corner, but more unemployment in the coming months is likely. More importantly, history tells us to expect businesses to keep downsizing well after markets and even the economy start to recover. The dour news will continue—it will be some time before an economic recovery is felt and longer still until it appears in many inherently backward-looking official statistics. But the silver lining is the stock market is the ultimate leading indicator. Don't wait for confirmation to be bullish, because market recoveries tend to begin with a big bang.