Jobs: Are They Headed Down the Right Path?

By Monday, February 6, 2012

jobs growthYou could not have asked for better timing. We’re in an election year. The country’s jobs picture is at its best point in three years, as the unemployment rate fell to 8.3% in January, something the Federal Reserve was not expecting as recent as the FOMC meeting in December. The generation of 243,000 new jobs in January was impressive, well above the estimate of 150,000 and up from 203,000 in December and 140,000 in November. The unemployment rate has declined for five successive months—first time since 1994.

The government’s $447-billion plan to drive job creation appears to be working. I have always said that we need to see job creation in order to become more positive on the economy. The jobless recovery in 2011 was encouraging, but more jobs will help to drive spending and economic renewal. With the latest reading, I’m sensing an uptick in the jobs market, but it must be sustainable going forward. The worsening situation in Europe is a wild card that could impact the demand for U.S. goods and services and hence job growth.

In 2009, about 15.7 Americans were looking for work and the unemployment rate was a whopping 10.2%. Fast forward, and the numbers in January are encouraging, but they need to continue to improve as there are still about 13 million Americans searching for work along with another 11 million people working part-time who are seeking full-time employment. This is the real risk. Economists combine the two groups to arrive at a metric called the “underemployment rate” that currently stands at 15.1%, which is problematic.

The 243,000 new jobs generated were encouraging, but the number is still well below the numbers reported during the economic boom years. Economists estimate that the country will need to create around 400,000 to 500,000 jobs monthly in order to drive down the unemployment rate to healthier levels, below seven percent.

The unemployment rate was at 7.8% when President Obama took office, but then he was sideswiped by the subprime and credit crisis that drove the U.S. into a deep recession.

 The weekly Initial Claims have also been declining and sits below the threshold 400,000 level. The four-week rolling average for claims continues to decline.

 While I’m not yet jumping on the jobs bandwagon, I am getting ready. Only through strong jobs growth will the economic renewal strengthen and the unemployment rate fall. The fact that the economy had been expanding in spite of a lack of strong jobs growth is encouraging.

I had previously estimated that the unemployment rate would hold above eight percent this year, but there is now a real possibility that the rate could decline to below eight percent if the eurozone crisis does not end in another recession and if China avoids a hard landing.

 China continues to be my top growth area for making money. After weakness in 2011, Chinese stocks have rallied to start the year. Read about why I think you should have some money in China in my discussion, China: On the Offensive Again.

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About the Author, Browse George Leong's Articles

George Leong is a senior editor at Lombardi Financial. He has been involved in analyzing the stock markets for two decades, employing both fundamental and technical analysis. His overall market timing and trading knowledge are extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi Financial’s popular financial newsletters, including Red-Hot Small-Caps, Lombardi’s Special Situations, Judgment Day Profit Letter, Pennies to Millions, and 100% Letter. He is also the editor-in-chief of a... Read Full Bio »