Friday's employment report — showing that more than 200,000 jobs were created in December, lowering the U.S. unemployment rate to its lowest point in nearly two years — has some market watchers rethinking their outlook for the year ahead.
“I don't know what the heck's going on here,” said Brian Gendreau, market strategist at Cetera Financial Group Inc. “This seems like nothing but good news about the economy.”
The report from the Bureau of Labor Statistics showed broad-based job growth, with the only job losses in December coming from the government sector. But even that figure — showing 12,000 government jobs cut — reflects a slowing trend.
With the unemployment rate for December measured at 8.5%, down from a revised November figure of 8.7%, the unemployment rate is at its lowest point since February 2009.
A GOOD WEEK
“This is a cap to a really good week,” Mark Lamkin, president and chief executive of Lamkin Wealth Management, a $225 million advisory firm, said Friday. “If this continues, it could get [President Barack] Obama re-elected.”
The data already have Mr. Lamkin rejiggering his investment strategy. Pointing to improved consumer sentiment, December retail sales increases that came in slightly above expectations and new data from the Institute for Supply Management showing increased business activity, he is ready to move money into stocks.
“Until this past Monday, we were 80% in cash, but we're now 50% invested, and [today] we'll be adjusting that to be 70% invested,” Mr. Lamkin said. “This kind of data is a model mover for us, and this shows that [gross domestic product] will likely be in the 3% range this year.”
Mr. Lamkin has been expecting the S&P 500 to gain between 8% and 12% this year. The latest jobs report — which shows 50,000 more hirings than predicted — leads him to think that the numbers could make the bottom end of his forecast moot.
“Until recently, we've been ex-tremely cash-heavy due to the European debt crisis,” Mr. Lamkin said. “But if these kinds of employment reports continue, I think the market will come in at the high end of our forecast.”FISCAL RESPONSIBILITY
According to the jobs report, employment in the private sector rose by 1.9 million jobs last year, but government jobs were trimmed by 280,000.
Although the loss of government jobs does have a negative effect on the unemployment rate, it also represents a direction toward fiscal responsibility and a broader recovery, according to Brien O'Brien, chairman and chief executive of Advisory Research Inc.
“The deleveraging of municipalities, states and the federal government is being accomplished in part by the shrinking employment levels in those areas,” he said. “A consistent rollback in government employment is important for fiscal stability long-term.”PRIVATE-SECTOR GROWTH
Defining himself as a “political liberal,” Mr. O'Brien said: “Government-created jobs make the budget problems worse. We need growth in manufacturing, construction and private enterprise.”
Mr. Gendreau took the latest report to mean that a third round of quantitative easing and a double-dip recession “are now off the table.”
He cautioned, however, that record corporate profits are, in large part, due to wages' being held down “because nobody is asking for a raise right now.”
jbenjamin@investmentnews.com
