Home About Archives RSS Feed

@theMarket: Jobs Versus the Market

Bill Schmick

The May non-farm payroll jobs report was a disappointment. So much so that investors dumped stocks, convinced that because the country only added 54,000 jobs, the economy is kaput and we all headed for economic Armageddon. Now, doesn't that sound silly?

Let's get real folks. We didn't lose 300,000 jobs last month, which might have justified Friday morning's sell-off. Sure, economists were looking for a job gain of 100,000 plus but why should any one be surprised that unemployment is still above 9 percent given the slow growth rate of our economy?

Since the end of the recession, quarterly GDP has been at best erratic. Beginning with the third quarter of 2009, we have experienced the following string of quarterly numbers: 1.6, 5.0, 3.7, 1.7, 2.6, 3.1, 1.8 percent. All but one of those quarters have trended well below the normal economic recovery rates associated with the end of a recession. Is it any wonder that our unemployment rate bounces around while remaining inordinately high?

The spate of negative economic numbers we have been experiencing of late, in my opinion, has much more to do with the body blow Japan has taken from its earthquake and aftermath. After all, Japan is the second largest economy in the world and the fallout from its present recession impacts everyone.

As for the markets, I believe there are similarities between the April-August period of last year and what is happening today. At that time investors were concerned that we were falling back into a double dip recession. GDP for the second quarter of 2010 had dropped to 1.7 percent from 3.7 percent, while unemployment hovered at 10 percent.

The S&P 500 Index fell by over 16 percent. It was only after the Federal Reserve Bank announced the possibility of QE II that the markets recovered in August. Now the S&P is almost 300 points higher.

Last quarter's GDP growth rate was 1.8 percent down from 3.1 percent the quarter before and unemployment is 9.1 percent, up a smidgeon from last month. Unlike last year, however, we face the "end" of QE II in less than 30 days.

Readers may recall that I discounted a double-dip recession last year. I argued that we were in a slow growth recovery and should expect erratic and conflicting economic data into the foreseeable future. As long as the housing market remains in the doldrums, so will the economy. That argument still holds. At the same time, if the economy slows further, the Fed still has our back no matter how many QEs it takes.

What investors tend to forget is that we narrowly escaped a second worldwide Depression two years ago. While politicians, investors and taxpayers alike speechify about our government's huge deficit and wasteful spending, they should stop and ask why the deficit and spending is where it is today.

As a result of the financial crisis, the deleveraging of debt in the private sector was an absolute necessity. The only way to accomplish that, without driving the world over the brink, was for the government to take on that debt (deliberately leveraging the public sector balance sheet) while, at the same time, spending as much as possible to jump start the economy.

To date, that strategy has worked, although not as perfectly as certain textbook economists might have hoped. We have averted a Depression although this last Great Recession is not like any of the recessions we have experienced since the end of WW II. It is going to take time, effort and patience to unwind the financial tangle that our banks, brokers and insurance companies have created. We are on the right track, even if our path ahead is dimly lit. Expect the track to run through peaks and valleys, make sharp turns, and accelerate at times, while coasting at others. In the meantime, stay the course.

As I write this, the markets are wrestling with 1,300 on the S&P 500 Index, the bottom end of my projected range. Could the markets fall even further? Of course, they can. If we break 1,300, the next stop would be 1,250-1,275, still not the end of the world. From top to bottom that would be an 8 percent correction, after a 300-point rally over 11 months. I'll gladly accept that kind of pullback for a chance to rally up to 1,400 or above.

Bill Schmick is an independent investor with Berkshire Money Management. (See "About" for more information.) None of the information presented in any of these articles is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at (toll free) or e-mail him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.

Tags: jobs, unemployment, economy      

Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
Pittsfield Finishes Unbeaten Season in Youth Football Juniors
Lee Seniors Win County Youth Football League Title
Downtown Pittsfield, Inc. to host Opening Reception for 'Art of Food'
Pittsfield Announces Trash/Recycling Bin Disposal Opportunities
Sponsors of Mass Save Grant to Support Energy Efficiency Education
Food Bank of Western Massachusetts Welcomes Berkshire Bounty
Ribbon Cut on Springside Pond as 'A Place for Everyone'
Three Injured in Pittsfield Halloweentime Shootings
Williamstown Select Board to Hear Update on Hazard Mitigation Plan
Becket Overnight Low Speed Lane Closures
 
 


Categories:
@theMarket (507)
Independent Investor (452)
Retired Investor (214)
Archives:
November 2024 (1)
November 2023 (4)
October 2024 (9)
September 2024 (7)
August 2024 (9)
July 2024 (8)
June 2024 (7)
May 2024 (10)
April 2024 (6)
March 2024 (7)
February 2024 (8)
January 2024 (8)
December 2023 (9)
Tags:
Rally Congress Markets Greece Japan Election Debt Ceiling Taxes Economy Europe Stock Market President Stocks Pullback Interest Rates Recession Federal Reserve Retirement Metals Fiscal Cliff Qeii Oil Bailout Stimulus Energy Selloff Euro Deficit Jobs Commodities Crisis Currency Banks Debt Unemployment
Popular Entries:
The Independent Investor: Don't Fight the Fed
Independent Investor: Europe's Banking Crisis
@theMarket: Let the Good Times Roll
The Independent Investor: Japan — The Sun Is Beginning to Rise
Independent Investor: Enough Already!
@theMarket: Let Silver Be A Lesson
Independent Investor: What To Expect After a Waterfall Decline
@theMarket: One Down, One to Go
@theMarket: 707 Days
The Independent Investor: And Now For That Deficit
Recent Entries:
@theMarket: Will Election Fears Trigger More Downside
The Retired Investor: Betting on Elections Comes of Age
@theMarket: Election Unknowns Keep Markets on Edge
The Retired Investor: Natural Diamonds Take Back Seat to Lab-Grown Stones
@theMarket: As Election Approaches, Markets' Volatility Should Increase
The Retired Investor: Politics and Crypto, the New Bedfellows
@theMarket: Stocks Make Record Highs Despite a Wall of Worry
The Retired Investor: Back to the Future in Nuclear Energy
@theMarket: A Week to Remember
The Retired Investor: Economic Storm Clouds Could Be Just Around the Corner