News

Fastest Growth in America

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The government puts out all kinds of information in various reports that are published throughout the year. Some of that information is carefully followed and dissected, such as unemployment numbers and economic reports. Others are completely ignored. But, the best ones are the reports that some reporter sees and concocts a grabbing headline around. Is North Dakota Really the Fastest Growing? The fun with headlines not withstanding, the biggest issue with many news reports about government numbers is that they provide so little context, to a readership that already has such a weak grasp on the math itself. The latest “big news” is that North Dakota has the fastest growing county in the U.S. by population. The key piece of information is that this statistic is not only by population, but also by percentage. For those of you with a firm grasp on the mathematics of statistics, and percentages in general, it comes as no surprise that the biggest percentage gains come the easiest from the lowest starting values. In other words, if you put a turtle in a shopping cart, you can increase his average speed by 1000 percent. If you change the top speed of a race car …

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Unemployment Hits 7% for November

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Unemployment numbers for November were released today. The unemployment rate hit 7.0 percent for the first time since November 2008. If your recent economic history is a little fuzzy, that’s right about the time the banking crisis and housing market implosion was a full tilt. In other words, we’ve been over seven percent unemployment since the so-called Great Recession started. I get  a lot of questions about economic news stories. In particular, people want to understand the significance of the various economic statistics that come out better so that they can separate real new from hyperbole. So, let’s take a look at these unemployment numbers and see what the deal is. What Is the Unemployment Range? First, off, it can be hard to overstate how important unemployment (or more accurately, employment) is to the overall well being of the economy. I’ve covered before what makes unemployment numbers so important, so we’ll leave that out for today and focus instead on what is going on here, and why it matters so much. One question I get from time to time is why people get so excited over small movements in the numbers. That’s a good question. It can help to have …

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Investing the Government Shutdown

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Too many investors try and ride short-term news events and rumors as a way to make easy money. It seldom turns out that way. Take the current government shutdown. Conventional wisdom says that Wall Street hates uncertainty. Furthermore, a lengthy shutdown could disrupt the still fragile economic recovery. Add that to the upcoming fight over the debt ceiling and you should have a plunging stock market. Funny thing, the stock market isn’t really going down. Stocks and the Shutdown of the US Government The problem, of course, is that we’ve seen this show before. Recently, Congress and the President took both the debt ceiling and funding the government to the wire but eventually reached a deal. While political partisans go red in the face discussing who won and the lost, the reality is that the overall economy, and by extension Wall Street, really doesn’t care how the pie is sliced up, as long as there is a pie. The only real concern for investors is that the instability at the government level will eventually bleed over into Main Street and Wall Street. Some may argue that is happening right now, but the fact is, no matter how long it seems, …

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What Is the Misery Index?

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There are few institutions examined more scientifically or mathematically than the U.S. economy. After all, in-depth understanding of economic conditions mean billions of dollars to the right people and policy makers. Unfortunately, a nation’s economy is a complex machine composed of an almost infinite number of moving parts. Economists seek to study and understand the economy in many ways, often by simplifying things with numbers and formulas. One of my favorite names for an economic statistic is the Misery Index. How to Calculate Misery Index The original Misery Index was surprisingly simple. You calculate the Misery Index by adding the unemployment rate to the inflation rate. The idea is that both unemployment and inflation are negative factors acting against a positive economy. By combining them, you could get some idea of how much of a headwind the economy is facing. Under this methodology, things would be worst during a time where unemployment was high and inflation was also high. Also, check out this review of Credit Karma Ironically, the Misery Index can peak right before a strong recovery. Consider a situation where there has been a recession or depression. Unemployment rises as companies lay off workers to reduce costs and …

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July Jobs Numbers

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Just a quick update today. After all, it’s Independence Day week and I’m a freelancer, so that’s double time off (without pay). The July jobs data has a slightly unusual split thanks the Fourth of July holiday. The new unemployment numbers were released on Wednesday, a day early because Thursday is a federal holiday, while the hiring numbers will come out on Friday. July Unemployment Numbers The numbers released today are for new unemployment claims. In other words, these job numbers are a measure of how many people recently lost their jobs, not how many people are unemployed, or how many are being hired. Theoretically, you could have a huge first time unemployment number and a huge drop in the overall unemployment rate if a bunch of people were hired and fired over the same time period. In real life, it seldom works that way. So, without reading too much into these employment statistics, the initial jobless claims number dropped by 5,000 to a seasonal adjusted 343,000, which is slightly less than economists were predicting, but by no means any sort of blockbuster drop. Certainly nothing here will make anyone worry about inflation. The uptake is simply that the economy …

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Jobs Report Quick Update

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The most recent jobs report shows not only did the US economy create more jobs in April than expected, the number of jobs created in February and March were revised upward as well. This takes some of the steam out of the negative talk about the lower unemployment rate being only about workers who have stopped looking for jobs. The stock market is responding positively because job numbers are important to the overall economy. Numbers get revised in the following months as more data comes in. For example, the April jobs report was released just days after the end of April. That takes a bit of trust in your numbers. When you get to go back through them with a fine tooth comb, you can spot things that are different. You can read the CNN story about the jobs report for details.   More details to follow here on Finance Gourmet. Follow my blog with Bloglovin

Why Employment Numbers Matter So Much

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Employment numbers, or unemployment numbers depending upon your perspective, are a very important metric for the U.S. economy. As such, investors watch monthly employment reports released by the government very closely. But, why is the rate of employment, or unemployment, so important to the economy and Wall Street? At the very macro level, the American economy is made up of two parts, private spending and government spending. Broken down further, private spending can be split into spending by business and spending by individuals. In this country, spending by individuals makes up the largest part of economic spending. In a very real way, whatever direction consumer spending is going in, the economy is going in as well. Some times, there is a lag, but generally, if consumers are spending less, then the economy is shrinking. While it is true that people who are unemployed will be spending less money, their presence actually creates a bigger effect on the economy. When you see on television that a company is laying off workers, that impacts your mental state on a certain level. If the company isn’t in your state and not in your industry, it may barely register. On the other hand, if …

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Why Facebook Doesn’t Count as Public Disclosure

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Reed Hastings’ post on Facebook does not count as public disclosure according to the SEC. The agency sent a notice to Hastings and Facebook to that effect soon after the post. Since then, Hastings’ defense has centered around the contention that the information was not material. No claim that a Facebook post is public has been made. Facebook Is Not Public Disclosure Regulation FD requires that publicly traded companies disclose all material information publicly. It prevents the practice of selectively telling Wall Street analysts or other people news about the company. While the technology community thinks otherwise, the SEC does not consider a post on Facebook as public for this purpose. The SEC published guidance in 2008 regarding the disclosure of material information online by publicly traded companies. A central tenet of that piece was that the company must make it clear that is does, and will, publish such information online. In addition, the company must make it clear WHERE such information will be published. Finally, investors must EXPECT that material information will be posted in such a location. Since 2008, most publicly traded companies have gone on to include in their traditional printed materials a notice stating that the …

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1987 Stock Market Crash 25th Anniversary

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Twenty-five years ago on October 19th, the Dow Jones Industrial Average fell 508 points, just over 22 percent, the biggest one-day percentage drop in history. The crash was so severe that it usurped the use of the term Black Monday, which had previously been used to describe the two-day crash in 1929 that led to the Great Depression. Ironically, the stock market ended up for the year in 1987, having opened on January 2, at 1,897 and closing on December 31 at 1,939. However, it would be almost two years until the market overtook the highs for the year that occurred before the crash. After Black Monday, the so-called circuit breakers were implemented to reduce the chances for such spectacular, all at once, market drops. These curbs were revised and expanded to individual stocks after the “flash crash” of May 2010. Most interesting for students of personal finance is that while events like these can be punishing over the short-term, they fade quickly into the realm of past returns for long-term investors. Remember that just a decade later, in 1997,  the stock market was in the middle of a major rally which would continue for several years until the popping …

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What Causes Inflation?

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Recently, I wrote a little bit about inflation. Specifically, I wrote about why the Federal Reserve is so worried about inflation, and why good economic news and inflation often seem to go hand in hand. That led to some questions about what inflation is exactly and where inflation comes from. What Is Inflation? Perhaps, it is best to start at the beginning with a definition of inflation. Inflation defined is, The rise in prices of goods and services when spending increases relative to the supply of the market. In other words, when prices rise because spending, by business, or consumers, or both rises. Where Does Inflation Come From? Pinning down exactly what causes inflation can be tricky. Inflation is a simple word applied to a very big concept that encompasses a lot of how a market economy works. For starters, inflation is natural. This may come as a shock considering how much the Fed and the media harp on keeping inflation down. However, inflation is inevitable as long as the population within an economy is growing, as is the natural state of the human race. Consider a small tribe with a fully modern monetary economy. Let’s say that there are …

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