Jobs vs. the Market

Has the U.S. jobs market improved? The answer is yes, but the true underlying
strength is still open to debate. But the next issue is the overall pace of
economic activity, and it has been cut in half in Q1 to around a 11/2% pace. So is
the jobs market the key towards kick-starting the tepid pace of GDP growth (or
GDI, which is even weaker)? Or is the lagging trend in the real economy going to
cause the jobs market to come back to reality. From my standpoint, the peak in
job creation has likely been turned in because it is doubtful that Corporate
America will allow their productivity rates to contract indefinitely — any more
than they did this time last year.

The big story last year was the sharp run-up in gasoline prices that, with a lag,
caused a virtual stalling out in spending growth. That may have been caused by
the Arab Spring while this year it is about Iran — either way, we are about to see
yet another period where prices at the pump curb discretionary spending.
Finally, let’s put numbers like 200k into perspective on the nonfarm payroll
front. Considering the extremely deep hole the labour market is climbing out of,
we should have already been seeing numbers of 400k or larger — yet, we
haven't seen anything like that since May 2010.

So what have we yet to see? We have to see the full effects of the gasoline price
run-up, with all the inherent lags. We have yet to see the full effects of the
deepening downturn in Europe — home to 20% of U-S. manufactured exports.
And we are now seeing signs of a spreading slowdown through the Asian
economy and again, with a lag, this will all come home to roost in a negative net
export performance in coming months and quarters. A renewed sputtering in the
U.S. economy would come as a surprise to a market that is presently
characterized by what only can be described as uber-complacent 16 VIX reading.
---Rosenberg