The way labor market affects stock market

Today, the stock market seems to be the best possible way of raising money for participants ranging from small individual stock investors to larger traders. Traders always keep a check on the stock market to analyze how it reacts to the given change in the economy. There are many factors that cause the market to rise and fall, and labor market is one among them.

The key indicators that an investor looks for are the total employment and the unemployment rate. The employed ones constitute of those who are actively working and the unemployed ones are those who are actually looking for jobs.

There is always some natural level of unemployment that persists in the economy because some people lose their jobs because of closing down of business, some are interchanging and some leave their jobs by choice. When the unemployment rate tends to be lower than the natural rate, scarcity of worker arises and so company bid up wages to attract workers which is passed on in terms of higher prices to the consumers, driving up inflation.

This change in the inflation rate affects the stock market. The inflation rate determines the real value of investment. The impact it has on the stock market is determined by the company’s earnings. If the inflation rate is low, companies make profits, which serves as a favorable situation for the stock market.

So, all things together, we can say that, any change in the unemployment rate brings a change in the inflation rate and so affects stock market.

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