During the past few days, several stock-market pundits claimed that the employment situation in the United States is improving. Yet, there’s little evidence to support those claims. Quite the contrary, the recent readings on several economic statistics indicate that the recent gains in the employment market might be nearing an end.
For example, the most-recent employment data from Automatic Data Processing reveal that the recent increases in the number of private-sector jobs in the United States rose during December 2010 to a level that, historically, has represented business-cycle highs. The monthly change in private-sector jobs failed to break above that level during each of the past three months.
Meanwhile, global outplacement firm Challenger, Gray & Christmas announced on March 30 that during the next three months U.S. businesses plan to reduce their work forces by the largest number of employees since July 2010.
In light of the fact that most U.S. cities and states only recently began to address their massive budget deficits, there’s a good chance that many of those job cuts will occur in the government sector of the economy. As of March 30, 32 percent of jobs that were cut during the past three months came from the government/non-profit sector.
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Separately, recent developments in the industrial sector of the U.S. economy indicate that the employment situation might worsen during the months ahead.
For example, orders for manufactured goods declined during February, the latest month for which data is currently available, and orders for non-defense capital goods, which serve as a good proxy for business investments in manufacturing equipment, declined for the second month in a row during February. That’s a very significant development, because there’s little chance that manufacturing businesses will continue to increase the sizes of their work forces if the demand for their products continues to decline. (Note: During January of this year, jobs created in the manufacturing sector of the U.S. economy accounted for 80 percent of all new jobs created by non-farm employers. In contrast, only 16 percent and 8 percent of all new jobs came from the manufacturing sector during February and March, respectively).
On a positive note, economic research firm The Conference Board announced on March 30 that U.S. employers posted substantially more job advertisements during March than they did during the previous month. In fact, online postings of job advertisements rose during March to the highest level since May 2007. That large number of job ads suggests that people who might soon be terminated from their government jobs might be able to secure a job in the private sector during the next couple of months.
For persons who invest in the U.S. equities market, the employment factors mentioned above suggest that U.S. stock prices will continue to trend higher whether the employment situation improves or deteriorates during the months ahead.
If the employment situation were to continue to improve, economists, money managers, and stock-market pundits would likely comment on such a development and they’d likely assure investors that the overall economic situation in the United States would therefore continue to improve. In turn, those persons would likely advise investors to add to their stock-market positions because of an improving economic environment.
If, however, the employment markets were to not experience any further gains in job creation, employers would likely be able to maintain their labor costs.
Meanwhile, anyone who currently has a full-time job would likely work very hard to keep their job. In the event of that occurring, U.S. employers would likely continue to experience increases in productivity — the output produced by U.S. workers would increase more than the labor expenses associated with employing those workers. If that were to occur, business profits would likely rise (profits equal revenues minus expenses).
Because the level and direction of stock prices is ultimately determined by the level and direction of business profits, the factors mentioned in the preceding paragraph suggest that stock prices will likely continue to trend higher if the recent improvements in the U.S. employment market were to moderate.
Hence, my research indicates that U.S. stock prices will likely continue to trend higher regardless of any near-term developments in the U.S. employment market.
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