US sees surge in jobs, finally
On 2 April, the US Labor Department reported that America added 308,000 jobs in March, almost three times economists' expectations and the biggest gain since April 2000. This positive surprise may persuade investors that the economic recovery is finally on a sustainable footing and keep the bull market in stocks alive. It also means that the US Federal Reserve may have to start thinking about raising interest rates soon.
Economists had expected a net gain of 100,000-120,000 jobs in March following a previously reported increase of 21,000 in February and 97,000 in January. As it turned out, the gains in the latter two months have been revised upward -- to 46,000 for February and 159,000 for January.
The unemployment rate, however, rose to 5.7 percent from 5.6 percent, as more people returned to the labour force looking for jobs.
Stocks reacted positively to the news. The Dow Jones Industrial Average rose 97.26 or 0.9 percent on 2 April, closing at 10,470.59. The Standard & Poor's 500 Index rose 9.63 or 0.8 percent, closing at 1,141.80, while the Nasdaq Composite Index added 42.16, or 2.1 per cent, to close at 2,057.17.
European markets saw similar performances. Germany's DAX Index added 2 percent, France's CAC 40 Index rose 1.9 percent while the U.K.'s FTSE 100 Index increased 1.1 percent.
Some economists think that this is the beginning of strong job growth.
In The Financial Times, Richard Berner, chief US economist at Morgan Stanley, was reported as saying: "This is the first sign of the long-awaited labour market recovery. Rising payroll employment has been the crucial missing piece."
"This will start waking people up to the possibility that maybe -- and this is only one month -- job creation has begun in earnest," Alan Blinder, a Princeton University economist and former Fed vice chairman, told Bloomberg. "Once job creation is firmly established at a solid pace, the Fed is going to start raising interest rates."
A rise in interest rates is normally considered bad for stocks. However, stocks have not done too well over the past few months anyway. To a large extent, this has been because of concerns over the weak job growth and the sustainability of the economic recovery. So interest rate increases in the context of strong job and economic growth may not be such a bad thing to stock investors.
In fact, interest rates may actually need to be raised sooner than many people think. Some observers think that the employment data reported by the Labor Department for previous months had been under-estimated, lulling the Federal Reserve into complacency on inflation.
Prudential Equity Group's chief investment strategist Ed Yardeni issued a report on March 31 titled, "Quality of Data, Not Jobs, Is Poor." He described a strong tendency for first-reported payroll-employment numbers to dramatically understate job creation in an expanding economy. Furthermore, he noted that "distorted employment data" affect the markets, Federal Reserve policymaking, and even the coming election. "My hunch is that the economy is once again generating more new jobs than shown by the Labor Dept.'s first reports," he wrote.
Donald Luskin, chief investment officer of Trend Macrolytics, thinks so too. "Until today, I've been convinced that the payroll jobs report is, simply, broken. It doesn't work," he wrote in SmartMoney.com on 2 April.
"It's very lucky that this broken indicator finally gave an accurate reading this morning, because this payroll report is probably going to determine the course of interest rates in the U.S. for the rest of the year. And it might determine who is elected president in November, too."
Both Yardeni and Luskin believe that the US economy is on a stronger footing than the official jobs data suggest, and have consequently been optimistic on stocks. It will be interesting to see whether data for the coming months confirm their view. If they do, the bull market in stocks may continue to run for at least a few months more.
Exactly how long more remains uncertain. The current economic resurgence is largely due to monetary and fiscal stimuli. With US government, corporate and household debts all at or near record levels, strong spending and economic growth is unlikely to be sustainable for much longer, even with job growth. Economic growth eventually must slow, and may even turn negative in a few years. Stocks will then be vulnerable to a correction, if not an outright bear market.
Until that happens, though, enjoy the bull run.
Economists had expected a net gain of 100,000-120,000 jobs in March following a previously reported increase of 21,000 in February and 97,000 in January. As it turned out, the gains in the latter two months have been revised upward -- to 46,000 for February and 159,000 for January.
The unemployment rate, however, rose to 5.7 percent from 5.6 percent, as more people returned to the labour force looking for jobs.
Stocks reacted positively to the news. The Dow Jones Industrial Average rose 97.26 or 0.9 percent on 2 April, closing at 10,470.59. The Standard & Poor's 500 Index rose 9.63 or 0.8 percent, closing at 1,141.80, while the Nasdaq Composite Index added 42.16, or 2.1 per cent, to close at 2,057.17.
European markets saw similar performances. Germany's DAX Index added 2 percent, France's CAC 40 Index rose 1.9 percent while the U.K.'s FTSE 100 Index increased 1.1 percent.
Some economists think that this is the beginning of strong job growth.
In The Financial Times, Richard Berner, chief US economist at Morgan Stanley, was reported as saying: "This is the first sign of the long-awaited labour market recovery. Rising payroll employment has been the crucial missing piece."
"This will start waking people up to the possibility that maybe -- and this is only one month -- job creation has begun in earnest," Alan Blinder, a Princeton University economist and former Fed vice chairman, told Bloomberg. "Once job creation is firmly established at a solid pace, the Fed is going to start raising interest rates."
A rise in interest rates is normally considered bad for stocks. However, stocks have not done too well over the past few months anyway. To a large extent, this has been because of concerns over the weak job growth and the sustainability of the economic recovery. So interest rate increases in the context of strong job and economic growth may not be such a bad thing to stock investors.
In fact, interest rates may actually need to be raised sooner than many people think. Some observers think that the employment data reported by the Labor Department for previous months had been under-estimated, lulling the Federal Reserve into complacency on inflation.
Prudential Equity Group's chief investment strategist Ed Yardeni issued a report on March 31 titled, "Quality of Data, Not Jobs, Is Poor." He described a strong tendency for first-reported payroll-employment numbers to dramatically understate job creation in an expanding economy. Furthermore, he noted that "distorted employment data" affect the markets, Federal Reserve policymaking, and even the coming election. "My hunch is that the economy is once again generating more new jobs than shown by the Labor Dept.'s first reports," he wrote.
Donald Luskin, chief investment officer of Trend Macrolytics, thinks so too. "Until today, I've been convinced that the payroll jobs report is, simply, broken. It doesn't work," he wrote in SmartMoney.com on 2 April.
"It's very lucky that this broken indicator finally gave an accurate reading this morning, because this payroll report is probably going to determine the course of interest rates in the U.S. for the rest of the year. And it might determine who is elected president in November, too."
Both Yardeni and Luskin believe that the US economy is on a stronger footing than the official jobs data suggest, and have consequently been optimistic on stocks. It will be interesting to see whether data for the coming months confirm their view. If they do, the bull market in stocks may continue to run for at least a few months more.
Exactly how long more remains uncertain. The current economic resurgence is largely due to monetary and fiscal stimuli. With US government, corporate and household debts all at or near record levels, strong spending and economic growth is unlikely to be sustainable for much longer, even with job growth. Economic growth eventually must slow, and may even turn negative in a few years. Stocks will then be vulnerable to a correction, if not an outright bear market.
Until that happens, though, enjoy the bull run.
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