Making Sense of the October Jobs Report

Wall Street seemed to like today’s jobs report. And with good reason.
The U.S. economy added 204,000 jobs in October, double economists’ expectations. That’s the second-most jobs added in one month since February. August and September hiring was also revised up by a combined 60,000 jobs.
Investors ate up the October jobs report numbers. The S&P 500 was up 1% today, recovering most of yesterday’s 1.3% losses.
The jobs report wasn’t all rosy, however. The unemployment rate was up a tick, from 7.2% to 7.3%. And we all know that the real unemployment rate is actually higher than the official one. Some people have either been out of a job for so long that they’ve stopped looking, or are only employed part-time.
The “real” unemployment rate is 13.8%, up from 13.6% in September. The real rate is unchanged since March of this year.
However, in the often backwards world of the stock market, the uptick in unemployment is actually a good thing. The lower the unemployment rate, the closer we are to Fed “tapering.” Fed chief Ben Bernanke has hinted that 6.5% might be the threshold at which the Federal Reserve starts to taper off its $85 billion-per-month bond buybacks, a.k.a. QE3.
Stocks have thrived since QE3 began in September 2012, rising 20% during that 14-month span. The federal stimulus measure has been a boon for the markets. Investors fear that pulling the plug on quantitative easing will be a major short-term blow to stocks – even if putting an end to QE3 would mean that the U.S. economy is finally able to stand on its own two feet without any help.
The whole thing is very confusing. Today was the best of both worlds for investors: the jobs numbers were good, but the unemployment rate got no closer to Bernanke’s stated tapering threshold.
Only on Wall Street does that make sense.