MOMENT OF ECONOMIC TRUTH

verfasst von leibovitz, 17.01.2003, 15:30

-->MOMENT OF ECONOMIC TRUTH
In the WebCast we are doing today I talk somewhat about the economic outlook. For well over a year now our view has been that the economy is rising, but at a muddling rate well below ideal and, in fact, well below normal for the first year of a new economic expansion. Going back to the first year of the last nine economic expansions, the average gain was real growth of above 7% in GDP. The real gain for the first 12 months of this expansion is less than half that or around 3%. As one example of the
fragile nature of the expansion, on the WebCast I said that the official independent body that determines expansions and recessions (the National Bureau of Economic Research) states that, as of right now, in the sixth quarter of rising GDP, they are still unwilling to officially state that the recession, which they said started in March of 2001, has ended! Perhaps the worst aspect of the recovery has been the fact that in the year since December 2001, when we believe the recession
ended, there has actually been a loss of jobs rather than the sharp gain seen in earlier expansions, as shown on E0028A below. But economic bulls have expressed some hope that the current jobless recovery looks a lot like the 1991 expansion. If so, we are nearing the moment of economic truth, because at this point in the 1991 expansion jobs began to grow rather sharply; therefore, this
is what I would focus on over the next three months. Based upon the current level of the labor force, a repeat of the 1991 expansion, after a flat first year, would see the equivalent of 500,000 new jobs for the next three months. If we do get job growth of 150,000 plus for each of the next three months, then the cyclical picture would brighten considerably. If you don't want to wait three months for the employment numbers to be released, I would note that the pickup began in 1991-1992 as weekly unemployment claims fell from around 400,000 to 350,000 (four-week averages). We have again been stuck around 400,000 this cycle, so I would watch unemployment claims each week.
In conclusion, the stock market has pretty well worked off the severe oversold condition so evident at the July and October 2002 lows. But now we probably need a sustained drop in unemployment claims and a solid rise in jobs to achieve a solid cyclical bull market. There are enough uncertainties regarding valuations and debt, in my mind, that while I remain bullish on a trading basis, I continue to have a stop-loss at 865 on the S&P 500. --Ned

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• MOMENT OF ECONOMIC TRUTH - leibovitz, 17.01.2003, 15:30