Well, it wasn’t supposed to be this way.
Apart from a couple of cock-eyed optimists, no one expected unemployment to fall. Why is that?
Part of the reason is that forecasting an economic turn is notoriously difficult. If you want to be an economic forecaster, just pick the trend and guess that it will continue. Chances are, you’ll be as accurate as at least 50% of the economists out there.
Of course this can’t take into account saturation, tipping-points, and economic nudges that a pronounced economic change entails. Those factors are qualitative as well as quantitative, and figuring them out is as much art as it is science.
But Friday’s employment report isn’t really a turning point—it’s more the acceleration of a trend. We’ve known that employment has been improving ever since April. But jobs data are lagging indicators; the leading indicators started turning up December last year. Now that the economy has essentially stopped shedding jobs, the gloom-sters will have to find some other data to pick on: the wrong kinds of jobs are being created, or people are spending too much time on the dole, or the last two recoveries were “jobless.” Sheesh.
The fact is that there is an economic recovery in place and things are getting better, not worse. Leading indicators have been looking better for a while, and current and lagging indicators are finally beginning to turn up. The latest employment report just confirms this trend.
Stopped clocks are right twice a day, and some day these perma-bears will be right again. But for now, it looks like we’re going to have a Happy New Year.
Douglas R. Tengdin, CFA
Chief Investment Officer
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