2011 – First Quarter Shows Improvement

The following is a perspective on the recent March jobs numbers from investment strategist, Kate Warne.

More Jobs Created in March

The March jobs report provides additional evidence that the slow but steady improvement in the labor market remains on track. In fact, nonfarm payrolls rose by 216,000* in March, the highest monthly addition since last May and the third consecutive month of accelerating growth. This suggests that the labor market may be gaining additional traction. March’s new jobs brought the unemployment rate down to 8.8% from 8.9%,* the lowest level in two years.

Steady Improvement in Employment
The labor market experienced solid improvement in this year’s first quarter. After creating approximately 1 million jobs in 2010, the economy was just shy of adding half a million jobs in the first three months of 2011. We expect employment’s recovery to continue, though it will take time to recover the 8 million jobs lost in the recent recession.

The economy typically improves ahead of the jobs market, making hiring trends somewhat of a lagging indicator. Nevertheless, the direction of the labor market is a positive one and consistent with the broad-based improvement in economic fundamentals. We believe further improvement in employment conditions will persist, driven by increasing business optimism and strong corporate earnings, which offers further support to the economy and the financial markets.

A Strong Start to 2011
Despite being only three months into 2011, the first quarter contained what seemed like a year’s worth of headlines. Though market volatility has risen in response to global disruptions, the S&P 500 rose 5.4%,* the largest first-quarter gain since 1998. For perspective, we experienced similar economic conditions in 1998, and global disruptions caused a sharp stock market pullback by midyear. Yet, importantly, investors who maintained perspective and a longer-term focus likely benefited as stocks ultimately recorded a strong gain by year-end.

Strength in the Economy
Economic indicators in this year’s first quarter point to continued improvement of the economy’s health. Encouraging trends include:
·   The strongest manufacturing and service sector growth in roughly five years
·   Two consecutive years of strong corporate earnings growth, with S&P 500 earnings expected to grow by 15%* in 2011
·   Rising consumer spending and income supported by lower debt levels, low interest rates and an improving labor market

Avoid Overreactions
A balanced approach is important for achieving your long-term goals, yet it’s one of the easiest things to abandon amid the uncertainty of today’s economic environment. An important part of a sound investment strategy is the ability to resist letting emotions or short-term distractions disrupt your longer-term goals. Despite recent world events or daily twists and turns in the stock market, the fundamentals of the economy and U.S. companies remain strong.

*Source: Bloomberg, consensus estimates for 2011 expected earnings growth

Past performance does not guarantee future results.

posted: May 10, 2011 | No Responses

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