Reading the jobs number today

by Wayne Ferbert on March 8th, 2013

The non-farm payroll jobs number came in this morning at a solid growth number of 236,000 incremental new jobs added in February. This is considered a solid beat of expectations which were anywhere between 160k and 200k – depending on your source. Under either scenario, that is a very solid beat.
But what to make of it?
The Bull would say: This proves the economy is recovering and increased GDP growth is right around the corner.
The Bear would say: While this beat expectation, since when did we ever get excited about 236k new jobs? That is well below the numbers you’d expect in a strong economy.
The Bull would say: The unemployment number went down a solid 2/10ths of 1% - to its lowest level since 2008.
The Bear would say: The long-term unemployed number actually ticked up – a continued sign that the underlying economy is not picking up for everyone.
The Bull would say: The market run up has been a leading indicator that a strong recovery is right around the corner. Get on the bandwagon before its too late.
The Bear would say: The market has already priced in some optimism but overall it is tepid optimism at best. The smart money knows the economy is fragile and a number like 236k jobs just proves that our economy is middling along.
What do we say about these comments? Well, we’d say that on some level, they are all accurate. As an investor, you need to consider all of these cases.
But in the end, we care more about what an economic recovery means for the QE efforts and the general rotation of assets away from income products towards equity and risk assets. If the economy recovers strongly, the Fed will ease up the QE buying programs and help interest rates rise again. The fixed income market will suffer from a valuation perspective – but in general, almost all asset classes will suffer with such a large buyer pulling money out of the market.
The problem we have: this number doesn’t affirm or reject the notion that a recovery is picking up steam. It is just a slightly better then steady result. You can’t come to a conclusion about our economy from these numbers – even when added to all of the other slightly improving numbers we have seen. In the end, all of these numbers still seem to indicate that our GDP growth is likely somewhere between 1.75% and 2.25%. In other words, not bad and not good – just kind of middling.
And the numbers we see in other asset categories this morning are bearing out that this number just confuses things; it doesn’t provide a strong case for either group. When the number first came out, both Treasuries and Gold futures dropped. And equity futures spiked nicely.
Now, here we are two hours later: Treasuries are still down but Gold has rallied to the positive and the equity markets have pulled back. This number is by no means any sort of smoking gun for either the Bulls or the Bears – just one more number that affirms that our recovery is complicated.  Its complicated.

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