Ian McGugan, Financial Post
Wall Street is looking for a happy ending to the Great Recession. Now if it can just get the facts to agree.
Many forecasters had expected yesterday's release of U.S. payroll data to show that the world's largest economy was no longer destroying jobs. Instead, the U.S. Labor Department reported that nonfarm payrolls continued to shrink, shedding 85,000 jobs this past month.
There were bright spots in the lacklustre report. Most notably, November figures were revised upward to show that the economy gained a handful of jobs during that month. It was the first time in two years that U.S. payrolls have managed to eke out any increase.
Overall, though, the U.S. unemployment rate remains stubbornly high at 10% of the workforce. About 15 million people are unemployed, double the number of two years ago.
The continuing pace of job destruction should raise concerns about the gap between the sunny views of the recovery propounded by Wall Street and the darker reality that appears to be prowling Main Street. While stocks are surging, the real economy isn't.
This is distinctly unusual. Stocks usually suffer during periods of rising unemployment because unemployment typically goes hand-in-hand with falling corporate profits. Declining profits make stocks less attractive.
In this downturn, though, stock markets have taken off like a rocket despite rising unemployment. The S&P 500 has advanced by 70% since March, although about two million jobs have been destroyed during those months.
One force driving stock prices higher is massive stimulus spending by government. Another is near-zero interest rates, which make the future stream of dividends from stocks that much more valuable.
But stimulus spending and low interest rates can't keep a stock market up forever. Japan provides the ultimate proof of that. Despite massive government spending and near zero interest rates for much of the past two decades, the Nikkei stock index trades for about a quarter of what it did back in the glory days of the 1980s.
Based on the ratio of its current price to its earnings over the past 10 years, the U.S. stock market is trading at valuations well below its dot-com levels, but about 30% above its average levels. Stocks could take a tumble if the unemployment picture -- and the profit picture -- don't start to recover soon.
Many traders believe such a recovery is well in progress. First-time claims for unemployment benefits have been dwindling, and job losses have grown steadily smaller since the darkest days of early 2009, when nearly 700,000 U.S. workers were being thrown out of work each month.
The small gain of 4,000 jobs in November is invisible compared to the entire U.S. workforce of about 150 million people, but any jobs number with a plus sign these days constitutes a victory in the recovery story. "The fact that positive job creation occurred in November 2009 is a very important fact, one that should not be ignored despite the headline print in December," says Ian Pollick of TD Securities.
Another positive sign is the continued increase in temporary help services, which added 47,000 positions in December. This was the fifth-consecutive monthly increase in the sector and suggests that employers are feeling out opportunities, although they're still reluctant to hire full-time workers.
A further jolt of good news may be in store thanks to the U.S. Census. The once-a-decade count of every American takes place on April 1 and hiring for the survey will provide as many as a million jobs during the first half of 2010.
Derek Holt and Karen Cordes of Scotia Capital believe the combined effects of census hiring and the natural recovery process could propel job creation in the U.S. far past expectations and create two million jobs in 2010. While those new jobs would only partially replace the seven million jobs that have been lost over the past couple of years, they would at least signal an end to the current downturn.
But there is the risk of a double-dip recession if Congress and the Federal Reserve decide to remove stimulus too early. Holt and Cordes, as well as Nobel-winning economist Paul Krugman, worry that any sudden improvement in the jobs numbers could lead to a premature hike in interest rates and withdrawal of stimulus.
If there is any undeniably good news in yesterday's disappointing numbers, it's that nobody will be agitating to hike interest rates or remove stimulus anytime soon. The Great Recovery remains a work in progress.
20,600 Total U.S. jobs lost among women 25 and over.
13,400 Full-time U.S. jobs lost among women 25 and over.
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