It’s About J-O-B-S, Again!

During the 2008 vice-presidential debates, referring to John McCain’s economic plan, Joe Biden declared, "Look, John's last-minute economic plan does nothing to tackle the number-one job facing the middle class, and it happens to be, as Barack says, a three-letter word: jobs. J-O-B-S, jobs."

On Friday, April 5, 2013, two 4-letter words drove stock trading action as “jobs” and “oops!” collided in a frantic U-turn in the Dow Jones Industrial Average. Based on tepid jobs data, the Dow dropped 172 points at the opening only to reverse course and pare losses, closing down only 40.86 points. The Dow Jones Transportation Average, considered a bellwether for the economy, overcame a deficit to finish in positive territory. One market strategist suggested that we take the March jobs numbers with a grain of salt given a revision of the February report to a much higher number. Initial government data often is revised to the upside and is not a reliable gauge of what is ahead.

Nevertheless, jobs are of concern. Addressing a gathering of financial advisors in New York on April 3, 2013, Robert (Dr. Bob) Froehlich, PhD, a highly regarded global economic and investment strategist, noted that what is happening in America is a pronounced “job shift.” Innovation always kills jobs in old sectors while opening new possibilities. The classic example is what the automobile did to the horse and buggy industry. New products, tools, processes, services, and rising productivity ultimately benefit the economy at large. The question for every worker (and investor) is, “As things shift, can you shift with them?”

Take technology. In the 1980s most of today’s IT-related jobs did not exist. Dr. Bob noted that in 1994 there was no Amazon, which today employs 33,000 people. In 1998, not that long ago, Google was incorporated as a privately held company. Google now has over 31,000 employees. In my personal and work life, with e-mail and an iPhone I spend very little on postage stamps (there goes postal employees), while spending more on technology and an IT firm on contract to keep it all running.

Dr. Bob expects job growth to remain weak as the lost decade in the market is restraining early retirement, thereby not opening positions for younger workers. Small business is not hiring. The tax hike on entrepreneurial job creators is having an impact. Suppressing capital formation and lending, the 848 page Dodd-Frank financial reform bill has mushroomed into 8,891 pages of new rules and regulations from ten different federal regulatory bodies—and the bill is only 30% implemented! Lending to small business is constrained; capital to expand is not easily obtained.

 Large corporations chopped jobs in 2008. While some overdid it, they are slow to rehire. The overall unemployment rate remains little changed at 7.6% but the concern is the number of people who have stopped looking for work. Dr. Bob thinks we may get to 7% unemployment, but we are not getting back to 5% any time soon.

A bigger problem may be a growing “skills gap” as we move deeper into an information-driven technology-based economy. Those with less than a high school education are in for a rough go. Employers report difficulties in finding employees with the skills needed, and the ability to pass drug-screening tests. The military has challenges with recruits unable to read the manuals necessary to maintain complex equipment. Opportunities are opening in job training, technical schools, and on-going career training and skills enrichment throughout one’s career.

The “rethink” by traders on Friday the 5th suggests that investors who believe in slower, but positive, global growth are willing to buy quality stocks on weakness. Any pullback could be seen as an entry point for buyers. Currently inflation is constrained and we have accommodative central banks in the U.S., Europe, and Japan. Eschewing wild cards like Korea or Middle Eastern turmoil, the outlook for global equities remains reasonably positive.

 Lewis Walker is President of Walker Capital Management LLC. and Walker Capital Advisory Services, Inc., a Registered Investment Advisor (R.I.A.) Securities and certain advisory services offered through The Strategic Financial Alliance, Inc. (SFA).  Lewis Walker is a registered representative of SFA which is otherwise unaffiliated with the Walker Capital Companies. ▪  3930 East Jones Bridge Road ▪ Suite 150 ▪ Peachtree Corners, GA 30092 ▪ 770-441-2603 ▪ lewisw@theinvestmentcoach.com