By now, you should be well aware of my NFP data views: The Employment situation has been gradually improving, but at a slow rate that suggests it will take a long time before we recover all the lost jobs of the 2007-09 Great Recession.
The 2001 recession took 47 months for that full jobs recovery to prior levels; I expect this time around, we are looking at more like 60-70 months.
While some have derided this as an unacceptably long time, it is consistent with other post-credit crisis recoveries, according to the data from Reinhart & Rogoff.
From an economic perspective, this month’s data should show a continuation of the gradual improvement we have seen the past 6 months. There will be some seasonal anomalies due to the Holidays, but overall, an increased number of private sector jobs should have been added last month. Bloomberg consensus is for a gain 150,000 gain in payrolls, with the unemployment rate slipping to 9.7%. The past month revisions have mostly been positive; look to see what they reveal as well.
From a market perspective, there are reasons for concern. As we have noted previously, the sentiment has gotten too one sided; But markets can stay overbought for a while and sentiment can remain frothy for months. What is of greater concern is the deteriorating quality of the rally. The Russell 2000 has outperformed the big caps this move, and we are starting to see increasing weakness in small and mid caps. Further, the market’s breadth seems to becoming increasingly narrow, with less stocks participating in the upside.
Hence, we have a market with expectations of a good number already built in, and a few warning signs of risk of a minor correction.
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