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Good news on jobs hurts Treasuries, oil, stocks; crushes gold

posted on December 4, 2009 at 4:06 pm
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economic recovery

All it took was an unexpectedly strong unemployment report.

Following the Bureau of Labor Statistics release of numbers showing the economy lost just 11,000 jobs in November rather than the expected 125,000, the Dollar Index broke above its 2009 trend line and the Friday November 27 rebound high.

That was enough to negate an initial rally in commodities and stocks on the good news on the economy. Oil fell to $75.65, a drop of about 1%. Gold was crushed, falling to $1169 an ounce, down 4%. Prices for Treasuries with maturities of two years and greater also tumbled.

Why did good news on the economy turn into bad news for commodities, gold, Treasury  bonds, and stocks?

Because it increases odds—at least in the minds of traders–that the Federal Reserve will raise interest rates sooner rather than later. Measured by prices in the Fed funds futures market, odds that the Federal Reserve will raise interest rates by its June meeting rose to 53% after the unemployment report from 31% two weeks ago.

Some on Wall Street rushed to say that the November unemployment report marked a trough in unemployment.

That seems a just a tad premature to me. This is just one-month of numbers and the end of the year jobs reports are historically subject to relatively large errors because it is so hard to accurately adjust them for seasonal hiring. How can statisticians accurately know if a job was the result of a permanent improvement in hiring and not a seasonal effect? They adjust the raw numbers by looking at effects in other years but that’s especially tough when the year in question, 2009, isn’t very similar to most years.

But premature or not, the November numbers have Wall Street increasing its bets that the Great Recession is over.

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  • Milestone on 5 December 2009

    We may not be receding as far as jobs go, but we lost so many jobs over the last 2 years that we are still in a recession until we gain them back. Since when is losing 11,000 jobs, especially during the seasonal hiring, not a sign that we are in a recession? Granted it wasn’t 6 figure job loss, but we lost jobs and the running tally is so high.

  • Wolfram74 on 6 December 2009

    What gets me is that we lost 11,000 jobs and had the unemployment rate dropped by 0.2%. First time I heard of losing jobs causing more people to be employed.

    Due to the season, bureaucratic statistics, and the historically large adjustments made to the measures of employment I would not put any faith in them as a predictor of anything. Unless you want to base buy or sell decisions on: we lost jobs (> -50,000), gained jobs (> 50,000), or stayed about the same (-50,000 to 50,000).

  • javos on 6 December 2009

    If a quotient (unemployment rate) gets smaller while the numerator (unemployed) gets larger, then the denominator (total work force) had to have gotten significantly smaller. Where did these workers go? I don’t care what the number says, these “missing” workers aren’t working, aren’t paying bills, aren’t paying taxes, aren’t spending. Which may explain why Friday’s early euphoria waned quickly.

  • javos on 6 December 2009

    Scratch my previous post…FUBAR!

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