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It's jobs, stupid!

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by Peter Switzer

When I think about what the US has to do to cement this stock market recovery, it gets down to — read my words, to rework a Clinton quote, “it’s jobs, stupid!”

Tomorrow the USA gets the critical unemployment number when the latest monthly jobs report is released. This revelation could have a big bearing on whether share prices head north or south next week.

Doomsday merchants

In their regular commitment to scaring people, the doomsday merchants in our midst — who have been wrong on the Great Depression Mk II, the stock market rebound since 6 March, the resurgence of China, the ability of Australia to avoid a technical recession and that the US recession would end this year — still cling to the warning that a US jobless recovery is on the way.

That’s why this jobs report will be looked at with a fine-tooth comb. However, the unemployment rate, which is now 10.2 per cent could be given a few more months before it’s expected to actually fall.

That said, an early fall would really excite the market.

Jobs outlook

Lately, jobless claims dropped into the zone where statistics experts said the Yanks could soon start seeing the new jobless numbers come in short of the job creation figures.

Last week, the number of US workers filing new applications for jobless insurance beat expectations, falling to the lowest level in more than 14 months.

Overnight, initial claims fell again by 5,000 to 457,000.

Working against new jobs in the USA has been the slow comeback of the US consumer and retail numbers overnight point to US shoppers still being reluctant to spend as they used to before the GFC.

So, how can jobs come if consumers won’t play ball?

A recent Reuters story summed it up neatly: “Aggressive cost cutting by businesses has pushed productivity sharply higher over the past months. That, combined with a surge in profits during the quarter, has convinced analysts that companies may start hiring and help the economy's recovery.”

Break into three per cent

In the September quarter the US economy broke out of the recession readings to grow by annual pace of 2.8 per cent. If this can punch into the three per cent plus region, then talk of double dip recessions and a jobless recovery will be KO’d.

And this, of course, will be great for share prices.

Ups and downs

By the way, some of the ups, downs and go nowhere moves on the stock market recently could be linked to suggestions that many fund managers are very happy with the money they have made this year and are going quietly until after the New Year.

That could be right but if we get better or worse than expected jobs news tomorrow, there could be some serious action before Christmas. Let’s hope we see a nice Santa Claus rally but even if we don’t, continuance of better than expected economic news should be great for share prices in 2010.

I am all the way with the USA. Go the US economy!

For advice you can trust, contact Switzer Financial Services.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Friday, December 04, 2009