From John Peacock, Edward Jones advisor:
I want to share our perspective on the May jobs numbers. Below are comments from our investment strategist, Kate Warne.
Is the Economy Stalling?
The lack of job growth in May is disappointing, especially for those hoping for a pickup in growth leading to a more robust economic recovery. Despite the weak job picture, the economy continues to grow at a modest pace, but it’s well below the rate of rebounds from past recessions.
Some recent economic news has been weaker than expected, causing many to think the economy is stalling. In typical response, the stock market dropped. However, there’s an important distinction to be made: The overall picture is of slow growth, not a stalling economy. It’s also important to remember that even slow growth tends to support rising stock prices over time. Of course, we’ll experience periodic, short-term pullbacks whenever the pace wavers, as we’ve seen in past recoveries, but that shouldn’t overshadow the long-term outlook.
Disappointing May jobs report — Despite expectations for a slight decrease, the unemployment rate edged higher to 9.1% from 9.0% in April. The economy created only 54,000 jobs in May, its smallest gain since September 2010. Although private employers added 83,000 jobs, the increase was about half as large as expected. Average hourly earnings rose in May, and the workweek was unchanged. Overall, May’s employment report reflected a slowdown in hiring as employers became more cautious.
Mixed economic news — While some recent economic reports have been disappointing, others have been better than predicted. For example, the manufacturing sector expanded at its slowest rate in more than a year in May, but service sector growth improved, according to the Institute for Supply Management. Overall, the economy is softer than expected, which is disappointing, but in a modest recovery, this is normal. In addition, the recent decline in oil prices and other raw material costs may provide a boost over the next few months.
Many people are frustrated that the economy hasn’t shifted into a higher gear with faster job creation. However, studies of past recoveries from financial crises show the erratic and modest recovery we’re experiencing is typical. Countries overcoming financial crises tend to grow slowly, with long recoveries. And we’ve been through this before. Coming out of the 1990-91 recession, the U.S. experienced very slow job growth. Although job growth occasionally faltered and the unemployment rate remained high until mid-1994, stocks rose steadily over that time.
Possible Action for Investors
The stock market has performed well for the past two years, with investments that tend to be more aggressive leading the way. However, many investors may have more risk in their portfolios than they originally intended. We believe investors may need to rebalance by adding less risky stocks, if appropriate. Investors may be concerned about the stock market’s reaction to the current soft patch in the economy, but they can take comfort that many stocks are still higher for the year. History suggests a sluggish recovery with slow job growth can still lead to stock market gains, helping investors toward their long-term financial goals.
I hope you found this information helpful. If you have any questions, please don’t hesitate to contact me.
With personal service,
John L Peacock Jr
Financial Advisor