Encouraging, but still lackluster.
That’s how one analyst described the September jobs report
released last Friday by the Labor Department. On the encouraging side, the
unemployment rate dropped to its lowest level since January 2009 and the
previous two month’s reports were revised upward to show 86,000 more jobs were
created than originally reported. On the lackluster side, “At the recent pace
of job growth, it would take about 28 months to recoup all the jobs lost during
the last recession,” and “The U.S. is still short about 4.1 million jobs compared
to its pre-recession
peak,” according to MarketWatch.
This middle of the road jobs report continues the tug-of-war
trend we’ve seen in the economy. Neither the recessionary forces nor the
expansionary forces in the economy can gain an edge. Like a chess match that
ends in a draw, the opposing economic forces seem to just about neutralize each
other and we end up with modest growth that doesn’t please anybody.
So, what has to happen for the economy to shake off its
lethargy and get back to an energizing growth level? Here’s a top six wish list:
1)
Solve the upcoming fiscal cliff
situation.
2)
Solve the European sovereign debt
situation.
3)
Reduce the stubbornly high long-term
joblessness rate and the alarmingly high youth joblessness rate.
4)
Complete the de-leveraging process
for certain sectors of the economy, including the banking and household
sectors.
5)
Complete a smooth transition of
leadership in China and light a fire under its economy.
6)
Replace the highly partisan
atmosphere in Washington with constructive collaboration.
Source: The Guardian
What are the odds of resolving some of these issues? Well,
if you believe the stock market, the odds look reasonable as the Dow Jones
Industrial Average continues to hover near a five-year high. Going forward, we
need to turn the “hope of solving” into the “reality of solving” to keep Wall
Street’s optimism from turning to pessimism.
IS THE U.S. “TURNING
JAPANESE?” Over the years, analysts have
compared the “lost decade” in the U.S. stock market to the ongoing “lost two
decades” in Japan’s stock market and wondered if we are heading down the same
path. With a wink to the 1980 New Wave hit from The Vapors, let’s take a look.
Japan
On December 29, 1989, Japan’s Nikkei 225 stock average, the
broad measure of the Japan’s stock market, peaked at 38,916. Five years later,
it closed at 19,753, representing a loss of 49 percent. But, it didn’t stop there.
As of last week, after more than 22 years since the 1989
peak, the Nikkei 225 is still down. In fact, it closed at 8,863 – a stunning loss of 77 percent.
Despite this dramatic decline and the tremendous
indebtedness of the country, Japan’s economy and society have not imploded.
Japan is still the third largest economy in the world, unemployment is low, and
the society is civil.
United States
Our stock market, as measured by the S&P 500 index,
peaked on October 9, 2007 at 1,565. That peak was followed by a more than 50
percent decline. However, unlike Japan, the U.S. market bounced back strongly
and, as of last week, the S&P 500 index closed at 1,461, representing a
decline of about 7 percent over the past five years.
Now, some people say we should go back to the March 24, 2000
peak in the S&P 500 index of 1,527 and consider that the starting point for
a lost decade. Fair enough. Using that date, the U.S. stock market is down
about 4 percent over the past 12½ years, excluding reinvested dividends.
Despite this weak stock market performance and the growing
indebtedness of our country, we still have the world’s largest economy, our
society is civil (mostly), and, while unemployment is lackluster, it’s not
disastrous.
Comparison
Five years removed from the peak in each market, Japan was
down 49 percent, while the U.S. market was down just 7 percent.
From the peak of Japan’s stock market through last week – a
stretch of more than 22 years – its stock market average is down 77 percent. In
the U.S., using our March 24, 2000 peak, we’re down only about 4 percent over
the intervening 12½ year period.
So, looking strictly at the numbers, we have not “Turned
Japanese.” While reasonable people can argue about our government’s policies
and the Federal Reserve’s actions, we can take some comfort in knowing that our
economy and stock market, while lackluster, are still persevering.
Weekly Focus – Think About It…
“The measure of
success is not whether you have a tough problem to deal with, but whether it is
the same problem you had last year.”
--John Foster Dulles, former Secretary of
State
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