Unemployment & the Stock Market

The unemployment rate in an economy points to the number of individuals who are unemployed. It provides an idea about the state of the economy and impacts the stock market.

Significance

Unemployment is an important economic indicator. Stock markets react positively or negatively when the government releases a monthly unemployment report.

High Unemployment

If unemployment rates are going up, that signals that companies are cutting jobs and don't have a positive outlook about the economy. This is likely to have a negative impact on the stock market.

Low Unemployment

If unemployment is low, that signals a strong economy. Employers are adding workers and optimistic about the outlook. Stock markets are likely to react positively. If the economy is already heated up, though, the stock market may view the low unemployment as likely to cause inflation and not react as positively.

References

• New York University: Unemployment Rate