Go Giants!!! Super Bowl champs again!!
Last Friday before the opening of stock trading on Wall Street, the Bureau of Labor Statistics of the Labor Department released its monthly Employment Situation report for January. Expectations weren’t particularly high. Commentators reasoned that, despite the fact the data are seasonally adjusted, the release of temporary retail workers hired for the holiday season would depress results.
Instead, the ES report was very strong.
The private sector added 257,000 jobs in January. As has been the case for some time, state and local governments laid off workers–14,000 last month. So the net gain was 243,000 positions. That’s well in excess of the 150,000 or so jobs monthly the economy needs to create to absorb new entrants to the labor force. It’s the best the economy has done in a long while.
revisions to recent data
Another plus–revisions to November and December data were also positive.
The BLS initially reported net December job gains of 200,000, comprised of 212,000 private sector additions less 12,000 state and local government layoffs. In the first of two revisions, the BLS upped the net figure by 3,000 positions, adding 8,000 more private sector jobs but tallying an extra 5,000 government job losses.
The November data were initially reported as a net gain of 120,000 jobs–140,000 added in the private sector, 20,000 lost in government. The December revision lowered the net figure to 120,000 additions–subtracting 20,000 from the private sector total and leaving the government figure unchanged. The second (and final) revision of November data raises the overall job gains to 157,000–178,000 positions added in the private sector, 21,000 lost in government.
Together, that’s 60,000 extra jobs.
The ES report is the latest in a series of economic data suggesting that the recovery of the domestic economy is speeding up and broadening. For the last three months, enough new jobs have been generated to not only absorb new workers but also to start to decrease the number of those left unemployed by the Great Recession. That’s welcome news.
From a stock market perspective, the report seems to me to have implications for strategy. For the past few years, the formula for success has been to concentrate on companies that cater to the affluent, who have been relatively unaffected by the downturn (yes, it may not have felt like “unaffected,” but it’s true). The idea that recovery is broadening, however, suggests that a stock portfolio should broaden itself out as well, to include companies whose customers are average Americans. It’s also another reason–as if you needed one–to tilt exposure away from Europe and toward the US.
A really aggressive investor might extend this notion further, to include beneficiaries of an acceleration in overall global growth–capital equipment, industrial raw materials or energy, for instance. This may turn out to be the right move, but I’m not ready to make the leap yet. I think it’s too risky. I’d prefer to stay with consumer discretionary and IT names.
It’s probably also high time to look carefully at anything that’s been in a portfolio for the past couple of years, asking whether a “safe haven” stock still has the low PE and high expected relative earnings growth to justify being a big position–or even to remain in the portfolio at all.