Will the Market Get a Haircut or Get Some Real Jobs?

February 3rd, 2011
by Portico Wealth Advisors

The stock market is on a tear right now… no doubt. As of this morning, the S&P 500 Index is up roughly 25% since September of last year, and boasts an astounding 91% rate of return from the market nadir in March of 2009. It has blown through resistance level after resistance level, eschewing headline risk like Egyptian protesters storming through the US Press Corps.

Part of what has fueled this extended recovery is pent up demand. The US has been tightening its proverbial savings belt over the past few years, and we saw evidence this past holiday season that they are ready to exhale a bit. Further, the Fed’s QEII policy, although not achieving the stated purpose of keeping long-term interest rates low, has definitely kept money supply up in the absence of velocity. However, the question still remains:  How can this recovery persist, when unemployment is following suit?

Jobs are traditionally a lagging indicator, meaning they tend to improve more slowly than other economic factors. However, we are now over a year and a half into the recovery, and so far we are not seeing the type of acceleration in the jobs market that a traditional recovery embodies. Perhaps Peter Morici, of the Street.com, said it best this morning:

Since December 2009, the private sector has added 112,000 jobs per month, but most of those have been in government-subsidized health care and social services, and temporary business services. Netting those out, core private sector jobs creation has been a paltry 58,000 per month, which comes to 18 per county as compared to more than 5000 job seekers per county.

Coming out of a recession, temporary jobs appear first, but 19 months into the expansion the pace of permanent, non-government subsidized jobs creation should be accelerating. Instead, core private sector jobs increased only 60,000 in December, and core jobs growth has fluctuated around that level for the last nine months.

By the end of 2014, about 13 million private sector jobs must be added to bring unemployment down to 6 percent, and current policies are not creating conditions for businesses to hire 360,000 workers each month.

These numbers are staggering and do not bode well for long-term recovery, at least not without additional stimulus. And additional stimulus will further fan the twin fires of inflation and dollar debasement. Perhaps the US should dive headlong back into manufacturing; with a devalued currency and a labor glut, we could be the new China.

Read all of Peter’s Story:  http://ow.ly/3PUEj