No one should have been surprised that the US stock market took a momentary dive last week just after the best unemployment figures in 23 years were announced.
Stock traders have regularly followed bond traders in declaring good news on jobs to be bad news. They have done so each step of the way down to the current, remarkably low 4.8 percent jobless rate. They have done so despite knowing that their gloom would soon look foolish as the real economy sailed on unfazed and markets rose.
The involuted reasoning of securities traders has its own logic, to be sure. It argues that an economy producing some 30 percent more jobs than expected in July is also likely to juice up inflation. Adding angst to the alarm were two other reports: (1) The Commerce Department disclosed that strong demand for cars and aircraft caused factory orders to rise healthily in June after a May decline. (2) The National Association of Purchasing Management reported a rise in factory orders in June, which will translate into stronger industrial production in coming months.
(If the current Teamsters strike against UPS lasts more than a few days, that forecast could be dented. UPS moves hundreds of thousands of parts orders for just-in-time arrival at assembly lines and repair shops.)
But market doomsayers argue that fast job creation and high manufacturing demand will be read by Fed chairman Alan Greenspan as creators of future inflation. And that could lead the central bank to raise short-term interest rates and thus slow the economy. So, good news becomes bad news once more.
Don't believe it. The strong global competition that has kept inflation low for most of this decade continues. In fact, inflation is not just low, it is falling.
Notice, too, that job security continues to play a more important role than big pay raises in labor negotiations like those at UPS. And, finally, note that boomer generation retirement saving continues to displace spree spending - another restraint on inflation.
Despite market slogans, good news may actually be good news.