Friday, November 03, 2006

Proof that I don't understand economics.

Here's the two headlines from CNN.com's "Business" section this morning:
Unemployment hits 5-year low
Stocks struggle on jobs report
So, apparently the highest employment rate in five years is dismaying investors? Please explain, using words of three syllables or less. Thank you.

12 comments:

B&N said...

They can't.

You see, the right guy isn't in the White House.

To do otherwise would not align with their stated goals.

Anonymous said...

with employment high, wages may rise, so profits may drop, so stock prices struggle. i think those were all three syllables or less.

it's not so hard to understand once you realize that big business is not your friend, never has been, and won't become so unless you get yourself a CEO's title and salary. cynicism and disillusionment about capitalism and free markets at no extra cost.

3yellowdogs said...

Anon has it right - mostly. Not only is big business not your friend, neither are the markets. Nor should they be. We operate in a (mostly) free-market environment where enlightened self interest on the part of all players results in the most efficient use of resources on the planet. That won't always produce results that appear logical.

"with employment high, wages may rise, so profits may drop, so stock prices struggle."

One other factor that can crop up from the above is inflation which always spooks the markets. The merest whiff of it can provoke a sell-off. Thus today's desultory results in the face of what is otherwise great news.

Standard Mischief said...

Just a guess based on my limited knowledge:

I also heard that wages have increased on average. If there's a shortage of qualified workers such that corporations have to pay higher wages to hire and retain qualified employees, then worker productivity goes down. (I know productivity is five syllables, but I'm pretty sure it's something like payroll expenses divided by gross income) Why they feel they can't just raise prices I have no idea. Tight money supply? Maybe the fed won't raise rates because they're afraid of throttling the economy or something. If the fed lowers rates them more people borrow money and the fed creates more of it out of thin air, thus increasing the money supply (no printing presses needed, we have binary ones and zeros now)

Even if I'm on to something here, exactly how everything interacts and whatever voodoo one needs to weigh each of the economic indicators to get the entire economy picture is usually beyond me.

Lizard said...

High employment==high demand==companies have to pay workers more==higher expenses==lower profits+inflation fears.

Grant said...

Perhaps I may weigh in with a decidedly non-expert point of view.

The first article is a statement of fact; the second is opinion ("analysis") disguised as fact.

When the market has a downturn (or an upturn), analysts and reporters always rush to find an explanation; then, to sell more papers/books/investment strategies they contrast the whole event with some sort of contradictory data, then scratch their heads and say "gee, why on earth is this happening in light of....?" ("market jittery on good jobs report.")

What could explain the market's activity over the last couple of days? Anything - and nothing. The analysts all have different explanations. I'll paraphrase an old Harry Truman quote: "If you laid all the stock analysts in the country end-to-end, they'd point in different directions!"

In other words, the market went down because it wanted to, in spite of any good news. You can't link them because there really isn't a link.

Historical note: the market tends to behave like this just before an election, or when precious metals prices jump. Both are happening at this moment.

GunGeek said...

One of the things I've heard a lot lately is that if there is any fear of inflation (due, as many have said here, to a higher demand for workers) then businesses spook over the threat of the feds raising interest rates. That tends to hurt business growth more than anything. In fact, the feds even use that as their justification (oh, sorry, too many syllables- how about "excuse") for raising rates- it will keep companies from borrowing money thereby slowing down the economy. Most outfits need to borrow if they want to grow. Stock prices are based in large part on future expectations of profit. If they aren't growing, the price drops.

Anonymous said...

not that this will come as a surprise to you, but this news item seems to explain it all:

http://www.foxnews.com/story/0,2933,226857,00.html

Art Eatman said...

I gotta go along with the second post. Give anonymous $64 and a box of Mars Bars.

But, where did the notion arise that corporations are supposed to be friendly? I'm just an individual, but in business I'm not your friend. I'm not gonna cheat you, but I'm not your friend--whether it's from behind my table at a gunshow, or doing dirtwork for you with my backhoe and dumptruck.

Generous Motors or Mr. Toyota, they're not my friends. They're trying to sell me a car, not hug my neck. As long as the product suits me, I'll do business. I'm not their friend, either. I look at any business dealings the same way, whether it's El Gigantico, Inc. or Mom'n'Pop's Donut Emporium.

"Caveat emptor" arose when Latin was still a Live Language.

Friends is for Happy Hour.

:), Art

Kevin said...

But Art, to some the job of government is to make business - big or small - act as if it's your friend.

"Profit," you understand, is an ugly word, and economics is a zero-sum game. Therefore, if someone "profits," someone else "loses."

Can't have that. Doesn't fit the utopic philosophy. Nope. Got to hate CEOs. They're the ones who "profit" from our "losses."

art eatman said...

For me, the zero-sum crowd elicits the barf smiley.

I've had a bunch of fun with a value-added game, not a zero-sum game. Outside of something like Hillary's cattle futures, life and economics ain't zero-sum.

Art

Anonymous said...

"CNN headlines" - that pretty much explains it.