Employment data colored the news again this week. Markets opened the week reacting to Good Friday's disappointing announcement that a mere 120,000 new jobs had been created in March, roughly half the anticipated total. On Thursday, the Labor Department reported that 380,000 people filed initial claims for state unemployment benefits and that the prior week's total had been revised up by an additional 10,000. Such data are notoriously subject to revision, so these disappointing numbers could yet be tempered in subsequent reports. On the other hand, they were supported by the National Federation of Independent Business's Small Business Economic Trends data that "indicate growing weakness in the job market and portend a rising unemployment rate."
The concentration of news items about unemployment brought to mind a blog entry that I wrote nearly two years ago in August, 2010, entitled "Keep Your Job." The point there was that economic, market and employment conditions were likely to remain so uncertain that a predictable paycheck was the most prudent safeguard. Except for those wealthy beyond the need to worry about income, maintaining that paycheck remains the best advice.
Stock dividends are extremely low, yet common stocks have provided an excellent return if one focuses solely on the past three years. Dangerous conditions, however, have penalized stockholders intermittently to such a degree that equity prices are no better today than they were in 1999. Some of those conditions--like excessive debt--are even more perilous now than they were a decade or more ago. Bonds have benefitted from direct purchases by the Federal Reserve in unprecedented amounts, and interest rates are near all-time lows. If rates rise in the years ahead, bondholders could endure significant losses. Returns on safe, short-term investments, of course, continue to yield virtually nothing. Investment income is hard to come by.
Glusken Sheff economist David Rosenberg made some interesting observations this week while commenting on recent employment statistics. He noted that: "…those over 55 years old have seen their employment ranks expand four million since the Great Recession began while the job level for everyone else has fallen eight million. The older folks are coming back into the labor market and at lower wages than they retired previously since they are desperate for jobs as they need the income as an antidote to their lost wealth from two asset bubbles bursting less than a decade apart."
In his current Weekly Market Comment, the insightful John Hussman noted that in the post-recession period since mid-2009 total U.S. non-farm payrolls have grown by 2.0 or 2.3 million jobs, depending on the survey used. Workers in the 55 and over category, however, have added just over three million jobs. That leaves workers in all other age categories losing from 700,000 to one million jobs. The employment picture remains precarious.
Compounding uncertainty in the investment markets is the question of whether we are likely to experience inflation or deflation in the years ahead. Clearly, Fed Chairman Ben Bernanke has vowed that we will not experience deflation on his watch. Toward that end, he has bent every effort to ward off deflationary forces through money printing. The logical ultimate consequence of such a course is inflation. At the moment, neither inflation nor deflation is a major problem, but that could turn quickly in either direction for a variety of reasons. For the most part, the most effective defenses against inflation or deflation are dramatically opposite from one another. Investors are as likely to make the wrong choices as the right ones. If you're still in a position to make an employment choice, keep your job and the predictable income stream that comes with it, at least until the investment landscape clears.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.