U.S. Jobs Creation and Evidence of Economic Improvement
Considering the Friday April 6 report citing 120,000 jobs added in March, U.S. equities declined 1.1% on April 9. With Alcoa’s stock value decreasing 1.4% on the anticipated announcement today of 2012 Q1 earnings, U.S. equities opened slightly lower this morning and the S&P was down over 1.5% this afternoon.
Primarily, a U.S. economic recovery is all about jobs creation. 440,000 U.S. jobs were added in Q4 2011, with 483,000 additional jobs added in January and February 2012; considering the March jobs growth, in the 2011 Q4 and 2012 Q1 over 1 million jobs were added to the U.S. economy, and the U.S. unemployment rate has decreased from 9% in October 2011 to 8.2% at April 1, 2012. Based on available data, in February 2012 there were 12.8 million persons unemployed, of which 5.5 million have been out of work more than six months; considering an estimated 154 million person workforce, the February 2012 unemployment rate was 8.3% (although the real rate is higher considering persons who are underemployed, and other factors). A continued month-over month-net jobs growth clearly increases employment, in addition to assisting to forestall mortgage defaults and increase consumer spending. As evidence, consider that U.S. consumer spending and manufacturing has increased every month from October 2011 to March 2012, correlated to the increase in net U.S. jobs creation over the same period.
There continues to be additional evidence of U.S. economic improvement, when compared to January 2009 as a benchmark. Monthly housing starts have averaged over 680,000 for 2011 Q4 and 2012 Q1 (554,000 in January 2009). Annualized auto sales have recovered to 14.1 million units, with a 2012 reforecast to 15 million units as announced April 5 (10.4 million units in January 2009). The Manufacturing Index has averaged (and has been increasing) 54.6 from October 2011 to March 2012 (34.9 in January 2009). Annualized U.S. GDP growth is estimated at 2.3% for 2012 Q1, and was 3.0% for 2011 Q4; historically, from 1948 to 2011 U.S. average annual GDP growth was 3.25%.
The long view for investors is that the U.S. economy continues to improve. According to Deutsche Bank as cited today, U.S. equity valuations are relatively inexpensive, with the S&P priced at about 13 times projected earnings for 2012. Considering then economic improvements, while mindful of continued EU difficulties, long term investors should revisit their investment policy statements and asset allocation models, benchmarked against their current investment objectives, total return expectations, and risk tolerance; EisnerAmper Wealth Advisors LLC continues to work with and advise our clients attendant to these considerations.