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VERSACE: Snow adds to pressure but jobs still key concern
Question of the Day
The record-setting snowfall in the Mid-Atlantic region this week is one factor, but there are others pressuring the stock market, as measured by the S&P 500, into a 4.2 percent decline so far this year.
There is little doubt that the shutdown of the federal government for several consecutive days and the near standstill in terms of consumer activity in the D.C. metro area will have some ripple effect but the overriding concern remains jobs specifically job-creation as well as questions surrounding Greece, its debt and related European rescue considerations.
Last week I touched on how recent economic indicators were not as strong as expected, particularly weekly initial unemployment claims. Despite some revision work with January's unemployment rate that resulted in a modest decrease from December, jobs and job creation remain a key talking point in terms of getting the economy rolling again.
This week saw the release of the Economic Report of the President, which is prepared by the White House's Council of Economic Advisers. In the report, President Obama cited his "continuing to call on the Congress to pass a jobs bill" and a "package that includes tax relief for small businesses to spur hiring" through a combination of infrastructure spending on roads, bridges and the like as well as incentives. The president also acknowledges the need to jump-start private-sector hiring.
With regard to job creation, we turn to Table 2-3 on page 75 for the Administration Economic Forecast and we see the administration forecasts average monthly nonfarm payroll employment of 95,000 in 2010. What is interesting is the forecast also calls for stronger average monthly job growth each year until 2013, just past the next presidential election.
But what does adding 95,000 jobs per month really mean? Can this make a meaningful dent in the unemployment rate? Probably not and that is because the economy needs a gain of more than 100,000 jobs a month just to keep pace with population growth. Even if the domestic economy were to add an average of 95,000 jobs each month, unemployment is likely to remain around 10 percent through 2010. With weekly new jobless claims still easily over 400,000, I have to wonder exactly when we are expected to see net new jobs being created to the degree that they average out to what the president's economic team is forecasting.
I say this as a recent Wall Street Journal forecasting survey showed that most economists believe that roughly a quarter of the 8.4 million jobs eliminated since the recession began won't be coming back. Looking to double-check this, I found Gallup's most recent job-creation poll, which showed more companies are letting go than hiring. Like most surveys, including that for the unemployment report, we have to question and understand not only the sample size of the survey but also who is being asked.
The continued uncertainty created by these non-conforming data points is clearly weighing in on the stock market. Layer on then the turmoil in Greece and its fiscal problems, which include a heavy debt burden and wide fiscal deficits - sound familiar? These issues have spurred fears of a sovereign default and fostered concerns across the 16-nation euro zone. As I write this, the European Union has pledged to bail out Greece if needed, but as we have seen here in our own country, bailouts do not really address the problem at the heart of the matter. Rather, a bailout is an interim band-aid measure.
While there are many factors affecting our own unemployment rate and the issues in Greece, it seems to me that there is at least one common element - the need to be competitive in the market place. A bailout for Greece or job creation that is led by government initiatives, be it federal or state is not the answer in my opinion.
As corporate earnings season winds down, these issues and their degree of clarity alongside fresh economic data that shows the pulse of the economy and the consumer will be the driving force in the stock market. I suspect the roller-coaster ride will continue for at least a little bit longer.
• Chris Versace is director of research at Think 20/20 LLC, an independent research and corporate access firm based in Reston, Va. He can be reached at cversace@washington times.com. At the time of publication, Mr. Versace had no positions in companies mentioned. However, positions can change.
About the Author
Chris Versace, the “Thematic Investor,” is the director of research at Think 20/20, an independent equity research and corporate access firm located in the Washington, D.C. area. Before Think 20/20, Mr. Versace was the portfolio manager of Agile Capital Management (ACM), a thematically driven alternative investment fund. The groundwork for ACM was laid during Mr. Versace’s tenure as senior vice president of equity ...
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