Two Gauges of the Economy – Unemployment and S&P 500

26 Jul

Printing money by the Federal Reserve and handing it to the bankers is not going to bring economic stability to the US or the world. The single visible impact it has is the creation of a rising stock market which for a lot of people is their only gauge of how well the economy is doing. And on that measure, the S&P 500 is on a rate of return of over 28% for the year, and 34% taken from the last day of 2012.

S&P 500 (SPY)

The market historically is a precursor to the health of the economy as measured by GDP.

“….shows a clear positive correlation between equity returns and GDP over the last ten years ….”

Based on that thesis, the good times have only begun. When you take a look into one other indicator within the US economy, you have to wonder what is happening.

Unemployment

Within the confines of Keynesian economic theory, the jobs are either created by the private sector (in good times), or the public sector (bad times). The rising stock market should be signifying good times, so the unemployment should be dropping, as it is, based upon the Federal government numbers. As the public sector is reducing jobs, the newly created jobs are from the private sector, due to the “good times”. Unfortunately, the only jobs being created in the US today are low paying service sector jobs.

The median household income in America increased from 1945 to 1999, where it went from level to a peak in 2006, into a steady drop into 2013. The US has lost its ability to manufacture products worthy of export due to its lack of international competitiveness, so this trend will never end. (Dr. Paul Craig Roberts: The Failure of Laissez Faire Capitalism and Economic Dissolution of the West )

“When you lose the ability to make things, you lose the ability to invent things.”

The unemployment may be dropping by official numbers, but the purchasing power of the American worker is dropping. It is hard to see this as a driver to higher GDP numbers and a rising stock market. Perhaps there is some credence to the notion that the market is being driven up by the Federal Reserve printing presses.

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One Response to “Two Gauges of the Economy – Unemployment and S&P 500”

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