Approach markets, employment reports with caution

If the market jumps almost 500 points and the unemployment rate plunges to 8.6 percent, everything must be dandy, right?

After all, the broader economy must be improving if more people are employed and the stock market a rockets upwards in the same week. Throw in an ADP private payrolls report that showed an increase of approximately 200,000 jobs in the private sector and everything looks just peachy for Christmas.

While there may be some encouraging signs to latch onto as the American economy slowly tries to pick itself up off the floor following the devastating recession several years ago, it is premature to say the United States is in a full-blown recovery. In fact, when all of this economic data is taken with a full dosage of realism and a little context is thrown in for good measure, the shine suddenly fades.

Let’s start with perhaps the most noticeable piece of good news. Following the announcement by several central banks, including the Federal Reserve, that they would make it easier for European banks to borrow money in the wake of the worsening European debt crisis, the DOW rose close to 500 points. For all the technical analysis and scrutiny the markets undergo on a daily basis, the most surefire way to tell if it’s in a bullish trend is if the market is going up.

However, the move by the Federal Reserve, European Central Bank, and their cohorts to inject liquidity into the market is only a temporary fix. Just because you put a Band-Aid on a nasty cut doesn’t mean it goes away. The Eurozone is still in deep trouble and is susceptible to collapsing. The Wall Street Journal and several other media outlets held the opinion that the move by the central banks helped Europe only narrowly avoid a Lehman Brothers-like meltdown in the European financial system.

If the leaders of the Eurozone don’t find a way to fix the mess Europe currently finds itself in, the economic hardships currently plaguing countries like Greece, Italy, Spain, and Portugal could easily spread across the globe, bringing down both Asian economies and the United States. This is one downside to having a global economy where everyone is linked together.

Furthermore, employment reports that came out this past week were, on the surface, encouraging. However, like the big jump in the markets Wednesday, just a little prodding reveals a significantly less rosy picture.

Yes, the ADP Report found the economy produced approximately 200,000 jobs in the private sector. Yes, the unemployment rate dropped to 8.6 percent from nine percent. On the surface this is encouraging news. But the monthly federal jobs report said the economy added a mere 120,000 jobs in November, narrowly missing the predicted number of 125,000. If the number of new hires missed expectations, how could the unemployment number drop? Furthermore, how could the two reports be so far apart?

For starters, the ADP measures only the private sector, so it doesn’t take into account struggling municipalities that have to keep slashing jobs in order to remain afloat. As far as the unemployment rate goes, as many as 315,000 people dropped out of the workforce. This does not mean they do not want to work, just that they have grown tired of looking, and the government no longer counts them as members of the active workforce. This is the primary catalyst for the 0.4 percent drop, which isn’t all that encouraging. The real rate of unemployment, which takes into account these discouraged workers as well as those currently filling part-time positions who would prefer to have full-time ones, is sitting at 15.6 percent.

These are not great numbers and certainly paint a far more discouraging image than some people would have you believe. This is not to say that there are no encouraging signs out there. Several companies, including Disney and Kellogg, have boosted their dividends and, although the ADP report doesn’t paint a complete picture of the employment picture, it did come in way above expectations.

In the wake of a euphoric week for stock markets, it’s just important to remember to take everything with a grain of salt. America is still in a precarious situation when it comes to its economic livelihood, and although it is in the middle to slow, tentative recovery, it is important to recognize the pressures from both within the country and from abroad. In today’s economic climate, few things are as good as they seem.