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Why The Stock Market Likes Today's Rise In Unemployment

The stock market greeted today's increase in unemployment with a rise of .7 percent before fluctuating set in. The Bureau of Labor Statistics announced that in August, the jobless rate hit 9.7 percent, up from 9.4 in July.

How could that be good news for anyone?

There are two reasons traders like it. First, the pace of decline seems to be slowing. Employers slashed 216,000 jobs, the fewest in a year. That suggests that companies have hit bottom and now have matched labor costs with the work available. It squares with increases in productivity — a 6.6 percent leap last quarter shows that workers are fully occupied — and forecasts that global trade has found the bottom and is ready to rebound.

Second, investors want the Federal Reserve to keep interest rates low. As long as unemployment is growing, consumer demand should remain flat. A lack of demand will help stave off inflation. And low inflation buys the Fed more time for its program of record-low rates to stimulate the economy. If prices began to climb uncomfortably fast, it would suggest there was too much money sloshing around in the system and the Fed would have to raise interest rates.

For stock traders, low interest rates act like oxygen fueling a fire. On the flip side, low rates drive down the value of lending money. You can see that in U.S. Treasurys, which fell after today's news before settling out.

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