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Icon's Callahan Suggests Jobs Data Has Little Impact on Investing

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The persistently high unemployment rate is seen these days as the key bellwether of the sluggishness of the economic recovery. The latest data on the jobless rate was the weekly new claims for unemployment insurance released on July 22, which found a slight increase both from the prior week’s claims on a seasonally adjusted basis, and on the four-week moving average. Specifically, the Labor Department reported that initial claims for the week ended July 17 was 464,000, an increase of 37,000 from the previous week’s revised figure; the four-week moving average was 456,000, an increase of 1,250 from the previous week’s revised average of 454,750.

But as for how you should use those numbers in investing, Craig Callahan, the founder and president of Icon Advisers, says “unemployment data has never been useful for investing.”

In Icon’s latest Market Moves Outlook report, Callahan discloses the results of research he’s done on the last recession that sported double-digit unemployment, in 1982, and compared it with the 2008-2009 recession to see how the stock markets performed coming out of those recessions. The Outlook report notes that despite a much higher unemployment rate going into the recession, and despite unemployment remaining high for years after the August 12, 1982 low, the S&P 500 index posted returns of 63.8% in the year following the low, up to a 282.2% increase in the five years following the low.

After the most recent recession’s market low of March 9, 2009, the one-year return for the S&P 500 was 53.7%.

The conclusion? Despite the long time it took for employment to decrease after the 1982 market low–it took 14 months for the 10.8% jobless rate in August to get to 8%, and stayed at 7% for another two years–those numbers “did not seem to dramatically hinder earnings data and the stock market.” While admitting that no one can predict what the longer-term results will be of the stock market from the 2009 low, “we don’t believe unemployment will have a deleterious effect on earnings or the market this time either.”

In an interview on July 20, Callahan said he had also researched the relationship between sales of non-durable goods to see if there was a correlation with the unemployment numbers, since conventional wisdom has it that higher unemployment leads to lower consumer spending, especially on non-durables. However, the research showed that not to be the case, Callahan reported. “Spending causes jobs,” he said, “not the other way around.


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