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A Positive Start for the New Year

The first employment-related leading indicators of 2012 were above expectations. According to the Labor Department, in December of 2011, 200,000 more jobs were added and unemployment dropped to 8.5% – its lowest level in nearly three years. In sum total, the job market gained 1.6 million jobs in 2011 This report came on the heels of an ADP National Employment Report detailing the increase in nonfarm private business employment by 325,000 jobs from November to December 2011. That gain represented the largest monthly increase in over a year and nearly twice the average monthly gain since May of 2011. 

Following the trend of the past year, private businesses continue adding jobs while the public sector continues to cut back (eliminating 12,000 jobs in December). Government job reductions were 188% higher than the second-ranked financial sector, which saw 63,624 job cuts in 2011, according to a report by Challenger, Gray & Christmas. These two sectors alone accounted for 41% of all the job cuts announced last year.

[CLICK HERE to read the Bureau of Labor Statistics’ news release, January 6, 2012..]
[CLICK HERE to read ADP’s December 2011 National Employment Report; January 5, 2012.]
[CLICK HERE to read the Challenger, Gray & Christmas news release, “Job Cuts Decline in Final Month of 2011;” January 5, 2012.]

Market Reaction
Normally a strong jobs report would trigger a spike in stock market prices, but so far the markets have been mixed. The biggest concern is the re-emergence of the European story, marred by recent debt rating downgrades in Hungary (Fitch: BB+ with a negative outlook) and Belgium (Moody’s: Aa3).Ratings agency Fitch also recently warned Italy, Spain, Ireland, Slovenia and Cyprus of the potential for “near-term” downgrades.

It seems our marriage to the new global market will not let us enjoy domestic good news unless the rest of the world can share in the good fortune. It’s really kind of sweet, when you look at it in a non-economic-albatross kind of way.

[CLICK HERE to read about Belgium’s downgrade from Moody’s; December 16, 2011.]
[CLICK HERE to read about Hungary’s downgrade at Reuters; January 6, 2012.]

That said, there’s no reason not to assess the “what ifs” of recent positive news in the US. What if jobs came roaring – or even just whimpering – back in 2012? What industries would stand to gain? Let’s assume for a moment that anyone unemployed for a significant period of time would not – upon procuring a new job – go on a spending spree with money they haven’t earned yet.

Let’s assume, instead, that such a person might need to buy a car. It’s a reasonable consideration, so perhaps the auto industry is poised to do well. If people who’ve been out of work suddenly have health insurance, it’s reasonable to expect an influx of health care visits, with subsequent drug and vision prescriptions renewed. So perhaps health care is another industry well positioned for increased profits.

We could go on and on. Let’s not be overly exuberant like the newly employed guy who immediately buys a (long overdue) HD flat screen TV to watch this year’s Super Bowl. But let’s do take a look at your portfolio to see if there are sectors where you could shore up while equity prices still represent good value. I look forward to working with you in the New Year!