To the casual observer, the recent rally in stocks might seem a bit unusual. After all, the past week’s plate of economic news was less than inspiring, with a report showing economic growth in the fourth quarter turned negative, consumer confidence plunged, and the Federal Reserve had nothing good to say about where things are headed.
Yet, the Dow Jones Industrial Average gained 5.1 percent in January, the best start to a year since 1994. The blue chip index is now less than two percent away from its all-time high, set in October 2007.
The Friday report on employment from the Department of Labor had reason for cheer. While payrolls rose in January by 157,000 — a solid but not spectacular number — the big surprise came in the upward revisions of job growth in November and December.
But the short-term gains are not strong enough to allow some experts to say the U.S. economy is out of the woods and on the way to growth.
“The economy remains vulnerable to the increasing headwinds of fiscal tightening. Therefore, the odds of recession for the first half of 2013 remain elevated. Technically, we are already half way toward fulfilling the working definition of a recession: two consecutive quarters of declining GDP,” said Robert Dye, an economist with Comerica Bank.
He was referencing the report from the Department of Commerce released on Wednesday showing the gross domestic production of the United States — the total of all goods and services produced in the country — fell 0.1 percent in the fourth quarter of 2012, the first negative reading since 2009.
The weakness in the last three months of 2012 is directly linked to a 22 percent drop in defense spending as the Department of Defense began trimming back on construction and other contracts with the pending threat of sequestration — automatic spending cuts in the federal budget — still on the horizon.
“Washington must find an approach to fixing our nation’s financial picture by ensuring that cities are able to make much needed investments in infrastructure and people. This approach would lay the foundation for future growth, while putting people into jobs right now,” said Marie Lopez Rogers, president of the National League of Cities.
Jobs, however, are being created. The San Diego region saw payrolls increase by 20,300 jobs in 2012 as the unemployment rate fell from 9.0 percent to 8.4 percent, well below the statewide rate of 9.7 percent.
And a new survey from Simply Hired, an online jobs search engine, finds an increasing number of jobs are available. It shows a total of 40,250 jobs available in San Diego County at the end of January, up 11.5 percent from a year ago. That represents one job for every three people looking for work.
“January marks the eighth time in nine months that we have seen an increase in nationwide job openings. It is even more encouraging to see some of the slower areas in the country showing year-over-year growth,” said James Beriker, CEO of Simply Hired.
In other words, we still seem involved with an economy, on the local, state and federal levels, that is not firmly committed to move in one direction or the other. But, there is reason to believe the trend is upward.
“On balance, despite ongoing uncertainties about events in Washington, the U.S. economy is plodding forward," said Dr. Lynn Reaser, chief economist at Point Loma Nazarene University’s Fermanian Business and Economic Institute.
"The Federal Reserve remains dedicated to supporting better economic growth while inflation remains subdued. Stocks are basking in the glow, with the major indices now approaching all-time highs. Overall, this is not a bad start to 2013.”