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Jobless News Is Not Necessarily Bad, Economist Says

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Bloomberg News

Published: June 7, 2008

The biggest rise in the unemployment rate since 1986 is an "aberration" and investors who sold equities Friday are "completely misreading" the outlook for economic growth, according to JPMorgan Chase & Co.

The Dow Jones industrial average fell nearly 400 points Friday after the Labor Department said the jobless rate increased by half a percentage point to 5.5 percent, the highest since October 2004, as an influx of students into the work force drove the biggest jump in teenage unemployment since at least 1948.

"The surge in unemployment is probably an aberration," said Thomas J. Lee, the New York-based chief U.S. equity strategist at JPMorgan. "It's not because there were fewer jobs, it's because there were more people looking for jobs. Stocks are completely misreading the situation."

Lee, 39, wrote in an e-mail that "stocks should be up" after the report, which also showed payrolls fell by 49,000 in May, a smaller decline than economists surveyed by Bloomberg News had forecast. The strategist said that since 1950, the Dow industrials posted a 30 percent average gain in the 12 months after a jump in the unemployment rate by half a point or more. A rise in joblessness of that magnitude has happened 16 times during that period, he said.

"Surges in unemployment happen at the end of the cycle," Lee said. "This is showing you what happened in May, it's not telling you what's going to happen in the next 12 months. Unfortunately, a lot of economic data is backward-looking."

Lee expects the Standard & Poor's 500 index to climb to 1,450 by the end of this year, according to a Bloomberg News survey on June 2. The S&P 500 dropped 3.1 percent to close at 1,360.68 today, and the Dow average fell 3.1 percent to 12,209.81, the steepest slide in 15 months. Crude oil rose almost $11 to settled up at $138.54 a barrel.

"At the end of the day we still have things overhanging on stocks, we still have high oil prices and we still have the credit cycle we're going through," Lee said. "But ultimately the economic data is showing the economy is pretty resilient."

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