US employment.

11th April 2012

Ian Copelin, Investment Director, my wealth, comments “The calm in global equity markets since the Greek bailout in February disappeared yesterday when the FTSE-100 fell 128 points (2.24%) to 5,596, as investors panicked over a double-dip US recession and an increase in Spanish bond yields fuelled concern Europe’s debt crisis is worsening.

The US Labor Department said on 6 April that employers added 120,000 jobs in March – less than the median economist forecast of 205,000.

Spanish bonds fell after the Governor of the Bank of Spain said that Spain may need more capital if the economy was to weaken more than expected, following a further 10 billion-euro package of budget cuts in education and health – less than two weeks after unveiling an already austere budget.

Although the market reaction to these events has not been pretty, there is a very clear disconnect between reality and expectations – ‘only’ creating 120,000 new jobs doesn’t mean a US double-dip recession.  Yes, the report was mildly disappointing, but it is important to average recent months – nonfarm payrolls averaged about 211,000 each month in the first quarter.  It is never going to be a straight line; it will have very strong months and some weaker months.

However, what is clear is that the job market and the economy are steadily improving.  In addition, hourly earnings climbed 0.2% on average in March after a revised 0.3% gain in February which was larger than expected.  Positive income growth will support consumer spending, which in turn will support the economic recovery.

Europe will probably be only a temporary concern as the market is simply signalling that the ECB’s LTRO hasn’t fixed all the problems.  However, the ECB and the European leaders no longer appear to be behind the curve and once investors see a plan or have reassurances, then Spanish bond yields will fall.

The FTSE-100 is currently up 26 points at 5621.55.”