With a couple of milestones out of the way (Dow 13,000, NASDAQ 3,000), investors get back to a favorite subject: Jobs. The U.S. economy is coming off back-to-back months of 200,000+ jobs (+203,000 in December and +243,000 in January). Expectations are for another solid month of gains in February, with 205,000 non-farm payroll positions created and for the unemployment rate to remain at 8.3 percent. The under-employment rate, which includes those who are working part-time because they can't find full-time positions, will likely hover around 15 percent.
For a little perspective on where we are in the jobs cycle, there is no better source than Calculated Risk, which notes that since employment bottomed in February 2010, the economy has added 3.17 million jobs (3.66 million private sector jobs added, and 510,000 public sector jobs lost). However, there are still 5.2 million fewer private sector jobs now than when the recession started and 5.6 million fewer total jobs.
Like the overall economy, the jobs market has made progress, but has a long way to go. Just ask Federal Reserve Chairman Ben Bernanke, who was guarded in his Congressional testimony last week. On employment, Bernanke warned that we shouldn't count on a consistent stream of 200,000 months. "The recovery of the U.S. economy continues, but the pace of expansion has been uneven and modest by historical standards."
To put a finer point to Bernanke's words, according recent research, the pace of growth in the current recovery is pretty lame by historic standards. In first 10 quarters after the two previous major recessions, which ended in 1975 and 1982, the economy grew by 13.4 percent; while in the aftermath of this recession, the economy grew by only 6.2 percent.
The economy is weak enough that Bernanke reiterated the need for exceptionally low interest rates, though not so bad that he mentioned any additional stimulus measures (no QE3 yet!) Other areas of concern for the Fed include household spending and consumer sentiment, which are only growing "moderately" and are being held down by housing, which is constrained by tight lending standards and falling prices.
Last week, data confirmed the national housing malaise: According to the Standard & Poor's/Case-Shiller home-price index, U.S. home prices ended 2011 lower than they began that year, with prices down 4 percent nationally last year. In real terms (adjusted for inflation), and as a price-to-rent ratio, house prices are now back to 1998 and 1999 levels. Poof -- the gains of an entire decade have been wiped out!
Additionally, many would-be buyers are struggling under mortgage debt. Mortgage data firm CoreLogic reported that 11.1 million of homeowners owed more on their mortgages than their homes were worth in the fourth quarter. That means that 22.8 percent of all residential properties with a mortgage are underwater and that share has barely budged since the recovery started in 2009.
Perhaps because of these macro factors, in addition to the ever-constant worries over Europe and surging oil and gas prices, the recent stock market rally is not causing widespread enthusiasm. In fact, according to Barron's, 40 of the largest wealth-management firms have downshifted the risk in their current asset-allocation models. Average stock allocation is now 45 percent from 49 percent a year ago, average fixed-income exposure has increased to 34 percent from 30 percent and cash holdings have increased to 4.3 percent from 1.6 percent. Some might see that as a buy signal -- after all, the pros haven't always been spot-on with market calls.
-- DJIA: 12,977, down .04% on week, up 6.2% on year
-- S&P 500: 1,369, up .3%, up 8.9% on year
-- NASDAQ: 2,976, up .4%, up 14.2% on year
-- April Crude Oil: $106.70, down 2.8% on week
-- April Gold: $1,709.80, down 3.7% on the week
-- AAA National Average Price for Gallon of Regular Gas: $3.76 (up from $3.45 a month ago)
THE WEEK AHEAD:
10:00 ISM Non-Manufacturing
7:00 Weekly mortgage applications
8:15 ADP Private Employment Report
8:30 Q4 Productivity and unit labor costs (revised)
3:00 Consumer Credit
200B euro private sector Greek bond swap
ECB rate meeting
8:30 Weekly Claims
12:00 Federal Reserve Q4 Flow of Funds
8:30 February Jobs report
8:30 Trade Balance
10:00 Monthly Wholesale Trade: Sales and Inventories