Saturday, May 5, 2012
Bad US jobs report: is the recovery running out of gas?
It was a bad week for the economy and a bad week for stocks. The April jobs report showed that only 115,000 new jobs were created last month which was far below expectations as the recovery gave more signs of running out of gas. The unemployment rate actually fell to 8.1% but only because of all the discouraged workers who gave up looking for work were no longer included in the survey. More questions are now being raised about the effectiveness of President Obama's policies and the Keynesian effort to stimulate the economy through deficit spending. Free market critics insist that all that debt the US has incurred trying to kick start the economy hasn't worked as growth continues to limp along at an anemic rate of 2-3%. They argue that the US would have been better off without any of the bailouts or QE and that the economy would have recovered by now. Interestingly, there are no shortage of critics on other side who insist that the problem isn't too much spending but rather not enough. Economist Paul Krugman asserts that the current recessionary phase could be ended quickly if only the government injected another several trillion dollars worth of stimulus. Who is right?
It may well be an impossible question to answer with any certainty. No matter how much economics attempts to mimic the practices of the physical sciences, any area of inquiry that concerns human behavior must accept the fact that much of it will simply be unknown. It therefore demands we accept the notion of probability and relative risk and reward instead of certainty. There are convenient facts for both sides in this debate. The recovery has been weaker than previous recoveries so this suggests that something is wrong with the way this one has been handled. Is it time to change the approach by cutting spending and perhaps cutting taxes? Certainly, European-style austerity is not working either although there are specific Eurozone problems that may not be directly analogous to the US situation. Plus, European governments are not cutting taxes so that is another divergence with the free market model. The hard core Keynesians like Krugman and Stiglitz believe that more stimulus will boost growth. It likely would create some growth in the short run but eventually it would also boost inflation, raise interest rates, and make foreign buyers of US treasuries like the Chinese increasingly reluctant to buy US debt. Is it a gamble worth taking? Again, there are no easy answers here, especially since this is an election year in the US. Fed Chair Bernanke may have to sit on the sidelines lest he be accused of political interference should be come forward with QE3. He could still do it before November, but it would tend to be a last resort sort of move. Obama will likely not be able to run on the promise of greater stimulus so he may have to finesse his current position. The whole debate is a reminder of the extent to which the consequences of policy decisions are ultimately unknowable. All claims to certainty should therefore be regarded with skepticism.
Stocks slumped last week on disappointing US jobs report and political uncertainty in Europe in advance of key elections in France and Greece. In New York, the Dow lost 2% closing at 13,038 while the S&P 500 finished at 1369. Indian stocks were also weaker as the falling rupee made stocks less attractive for foreign investors. The indices broke through some significant support levels as the Sensex declined 2% to 16,831 while the Nifty ended the week at 5086. I thought we might have held onto the early week gains on the strength of the Venus aspect but it seems as though Saturn is moving to center stage now ahead of its entry into sidereal Virgo on 18 May.
As I have noted, Jupiter and Saturn have been in an uneasy truce in the sky lately as stocks have traded within a fairly narrow range without clear direction since perhaps March. I suggested that bearish Saturn was likely to become stronger in May and June in part from its re-entry into Virgo in the coming days. We may well be witnessing some early manifestation of this Saturn energy here. However, the picture is complicated by the near-simultaneous Venus retrograde station on 15 May. Venus is normally a bullish planet but its geometric association with Saturn could nullify or even reverse its effects. For this reason, we need to keep an open mind about the next week or two. I would tend to think the Saturn will prevail here and the market will continue lower, but any outcome is possible. The added burden for the market is that the eclipse period begins on 20 May. Eclipses often highlight areas of uncertainty and interrupt stable and predictable routines.
The planets this week offer a mixed bag of influences. Monday's Moon-Rahu conjunction is likely to activate the negative Mars aspect so that may mean more selling, especially in Asian and European markets. Tuesday's Moon-Venus aspect may bring some relief but it does not seem to be overly positive. As we move into the second half of the week, the Sun will approach its conjunction with bullish Jupiter. This conjunction is exact next weekend, but some optimism looks likely to flow from it nonetheless.