Despite the disappointing jobs report for March, it’s very difficult to make a realistic case that the economy is falling off a cliff, or that some kind of double-dip recession is on the way. Or that a Ben Bernanke QE3 is likely.
Sure, the 120,000 gain in nonfarm payrolls — roughly half of expectations — is causing a downgrade in growth psychology. Ditto for the 31,000 drop in household employment. But if you smooth out these numbers over three months, payrolls have averaged a 212,000 increase, while small-business household jobs are still up a big 415,000.
But let’s not forget other data points: ISM indexes in the mid-50s are still reasonably strong. Consumer confidence has been rising. Jobless claims have been falling. Car sales are solid. And chain-store sales are beating expectations. It still looks like a 2.5 to 3 percent economy.
Not 5 percent, as it should be coming out of a deep recession. There are too many policy obstacles for that. Overspending, huge tax threats, a highly interventionist Fed policy and Obamacare regulations, mandates and taxes have damaged the animal spirits and held back growth from the normal spring-back off a deep recession. And these policy issues are not going to be resolved until well after the election. So instead of growing at 4 to 5 percent, as is the post-WWII norm, the recovery is only 2.5 percent.
But that has all been built into the stock market, which has over the past three years rallied on the strength of the tremendous performance of private-sector businesses. As per Monday’s Wall Street Journal lead article, U.S. businesses have emerged from the recession stronger, more profitable and cash-flow rich. The business recovery is not going to falter, although businesses are not going to rush to hire new workers until they see a resolution of the various fiscal, monetary and regulatory problems.
Nonetheless, because of the strength of business, I think the stock market still has value and should be bought on the dips. Investors should not overreact to one month’s jobs report. That game is never worth the candle. And incidentally, energy-price headwinds may be slowing down, as crude oil and gasoline begin to level off.
I do agree with economists Jim Pethokoukis and David Malpass that extended unemployment benefits and other policy mistakes have so lowered the labor-participation rate that 8.2 percent unemployment is in fact way understated. Congressman Duncan Hunter wants the official unemployment rate to include the number of individuals who gave up looking for work. This is already published by the Bureau of Labor Statistics as the U-5 rate, which currently stands at 9.6 percent. That number probably more accurately reflects the joblessness problem.
But be that as it may, the economy is not collapsing, no matter what the March jobs figures show. Nor will the stock market collapse. If the dollar continues to stabilize, holding down energy prices and steadying consumer real incomes, that plus the pristine financial condition of business augurs reasonably well for future stock prices, although new advances will come at a slower slog.
Larry Kudlow is the host of CNBC’s “The Kudlow Report.”