Finally, we get a jobs report that actually fits into everyone’s expectations and shows strength in the right areas. In fact, this report should do several things for the market and the economy.
First, this jobs report will bolster confidence for investors and business leaders that the economy is, in fact, strengthening, which means a greater money flow into equities and risk in general. It also means more job creation is coming. The latter probability strengthens from the fact that business expenditures for capital improvements also rose this quarter, which means that the middle and back end of this year will see more people working as that flow of money takes the form of new equipment purchases, upgrades, installations, and product output.
Speaking of confidence … This report, and the enthusiasm attached to it, will also bolster the confidence of consumers, the same folks who have been losing confidence as oil prices have spiked and gas prices have risen. Inflation is always a concern; however, an underreported piece of the jobs report is that it shows no wage improvement. On the one hand, this is not good, as we want more money in the hands of the consumer; on the other, it is good, as 70% of non-core inflation is comprised of wages and benefits.
This report also helps our monetary and fiscal issues. On the fiscal side, more folks working means more tax revenues and on the monetary side, this report will keep the Fed thinking June is the end of QE2 and that inflation is in check (non-core). This will help set the mindset for the market that the ongoing economic stimulation can end without everything falling apart and that interest rates will go up later rather than sooner.
I will step out on a limb and tell you that this report bodes well for the real estate market as well. As employment continues to trend upward, consumer confidence builds, and if mortgage rates hold at these levels (and it appears they will), and rents keep rising (as they are), the mindset of the consumer will change. The change will begin with the notion that it is once again safe to buy real estate. The practical consumer will then move to the idea that was so common in the boom years, “Why pay so much rent when it is cheaper to buy?” Mix into the above the realizations another … there will never be a more affordable time to buy some real estate. Personally … I have contacted my real estate agent and we are having lunch next week.
Looking back at the past month or so, the market resiliency foreshadows the story now unfolding. If you recall, the breathless media told us, “The market has moved too high, too fast,” (as if recovering from relative historical lows in two years is too high and too fast). The market corrected slightly when the Middle East, oil prices, Libya, and Japan exploded in our faces. It digested those maladies and moved on. As well, the market swallowed the news that rising gas prices would temper the consumer; they have not, and it seems the market understood this, as well. Washington noise about the budget, the political games, and all of the other fiscal issues did little to convince the market that the economy was not strengthening.
My friends, this is what the market is all about – profit and growth. The rest is just perception, reaction, and some sleight of hand. The market wants businesses profitable and growing, and with this jobs report, that likelihood is more probable. “Listen to the voice of the market,” I say.
Trade in the day – Invest in your life …
