Weekly Market Commentary 4-4-2011

Jobs – Now What?

According to the BLS data for March employment increased by 216,000 and the unemployment rate dropped to a 2 year low of 8.8%. They also revised up the January and February employment numbers. So for the first three months of the year the economy has added 188,000 private payroll jobs per month. Based on this trailing indicator the economy is clearly improving.

Now What?

With the US economy now improving, the next questions to ask are:

  • How good will it get?
  • How soon will it take to get there?

When the recession began we used this simple graph below to illustrate the question at that time. It seems to me we can dust off the graph and use it again.

two great debates in the economy

We now know how far the economy fell and we are coming close to knowing how long it will take to recover.

It's my guess (emphasize on guess) that if we continue to get 3.3%+ GDP growth then we could see continued job growth around 225k/month and possibly 300k/month by the end of the year.

As discussed last week, we still have a “Wall of Worry” at center stage that we have to work through, and that’s going to generate some bumps and bruises for those that lose perspective.

To keep the right perspective, remember that the markets are forward looking. So at the same time, we have to start thinking about how good can the future get because our markets are fairly efficient at discounting news and can do so far into the future

Because asset allocation matters most, per the illustration below, it is critical to contemplate the next adjustments to our portfolios. Much more on this in future comments.

Determinants of Portfolio Performance:

determinants of portfolio performance pie chart

Source: Financial Analysts Journal, May-June, 1991, “Determinants of Portfolio Performance II: an Update” by B.G.P. Brinson, B.D. Singer and G.L. Beebower. Results are based on the 10-year performance record of 91 pension funds.

As for now, it's on to earnings season to see if the lagging jobs numbers match the earnings capabilities of companies.

The “Now What?” always comes quicker than we realize.

Please send me your thoughts, comments and feedback to tphillips@phillipsandco.com

Tim Phillips, CEO – Phillips and Company