The January Employment Report: Advantage Obama

Morris Segall      Capital Markets, Economic Growth, economic recovery, employment report, job creation, obama, politics, Presidential election, U.S. stock market, unemployment rate

This past Friday saw the release of important data on the U.S. economy in the months of December, 2011 and January, 2012. Included were factory orders and shipments for December and the ISM Non-Manufacturing survey and employment report for January. All three reports showed surprisingly strong numbers and on the heels of the strong ISM Manufacturing survey for January, released on February 1, showed a  U.S. economy accelerating in recovery.

All four reports showed acceleration in growth to pre-recession levels and none more impressive than the January employment report. The total number of private sector jobs created in January were 257,000, the highest number of new jobs since last April.  In addition, the Labor Department in its annual revisions to the prior year’s employment data, found an additional 631,000 jobs had been created than originally reported. The January employment gains were widespread and included for a second consecutive month, gains in construction, manufacturing and white collar professional, managerial and administrative positions. The number of long term unemployed and underemployed workers declined significantly, as did the average duration of unemployment to approximately 40 weeks from approximately 41 weeks in November and December. The unemployment rate dropped to 8.3%, below analysts expectations, and the lowest unemployment rate since February, 2009. To be sure, 8.3% unemployment and long term unemployed comprising over 40% of total joblessness is not at all a healthy labor market.  Even with the new found jobs in 2011, the economy still needs to recover 4-5 million jobs lost in the recession. Nonetheless, the January employment report represents a turning point, in our opinion, in the economic outlook for the U.S. this year and into next. The acceleration and increased breadth of job creation was the critical missing link to a more classical economic recovery than what we have been seeing since the recession ended in 2009. If the economic data of the last five months continues and increases further, estimates of U.S. GDP growth and corporate earnings growth for 2012-13 will be increased. This in turn will prop up the U.S. stock market as more investors abandon risk aversion in favor of more risk. The latter will continue to be heavily influenced by overseas events in Europe, the Middle East and in the emerging industrialized economies of Asia and Latin America and there are significant problems in these regions that can  offset improved economic news in the U.S. and negatively impact world capital markets.

However, the improving economic data, particularly the January employment report and 2011 revisions, will undoubtedly help the President in his re-election efforts. We have said since his election in 2008, (See our website article, “The Election, November, 2008), the Obama presidency would rise or fall based on the economy. This year’s election has been about jobs and the economy and the improvement in both since last Labor Day will help the President’s  approval ratings. This improvement must continue into this fall’s election to aid the President but the January employment report is what the Democrats and the President have been hoping for going into the election. We will see if it continues.

Morris R. Segall