Where will the new jobs come from?
The market was not pleased with the recent jobs report and neither was our research team/. The only difference is that the market seems to have been caught somewhat by surprise by the report whereas we were not surprised and, additionally, we anticipate a gloomy future for the U.S. job market for quite some time.
To understand the disappointment, one needs to drill down into the jobs data. The U.S. Labor Department reported that nonfarm payrolls rose by 431,000 last month. On the surface, this sounded very promising for an economy that needs to put its citizens back to work to help fuel a stalling economic recovery. However, it was also reported that economists were expecting approximately 515,000 jobs to be added and 411,000 of the 431,000 jobs that were added (i.e. 95%) were actually temporary jobs with many tied to this year’s census project. Essentially, there was no job growth despite the headlines.
In our opinion, there is no such thing as a jobless recovery and the continuing lack of private sector job creation concerns us. With a current U-3 unemployment rate of 9.7% and a current U-6 (a more encompassing unemployment data point) of 16.6%, the prospects for economic growth fueled by gains in consumer spending become daunting. Remember that the United States economy is now more service oriented than manufacturing driven and service oriented economies, which thrive on innovation, do not tend to have the capacity to produce large numbers of new jobs. Further, it remains to be seen if any new job creations will go to existing displaced U.S. workers. As a result, it is entirely possible that the United States will continue to have a relatively large percentage of labor force underutilization.
Despite our somewhat dismal outlook for the U.S. economy, we do remain cautiously optimistic with respect to the capital markets for those investors with a diversified portfolio encompassing a wide range of asset classes and sectors that is rebalanced as needed and revisited (and potentially adjusted) at least once annually.