by Ralph Cole, CFA
Executive Vice President of Research
Workin’ for a Livin’
The U.S. jobs report has become the most watched economic indicator in the world. The jobs report comes out on the first Friday of the month and includes the unemployment rate and number of new jobs created the prior month. Both January and February reports were underwhelming due to weather, but we think employment will strengthen more than people think in the coming months.
Dan Clifton of Strategas alerted us this week to some underlying trends that will be playing out in the labor market in the coming months. Extended unemployment ran out at the end of December. The Senate voted this week to retroactively extend those benefits through May of this year, which may or may not become law. The fact is that long-term unemployment benefits ran out for a significant number of people in December. History tells us that many of these folks will go out and find jobs, bringing down the unemployment rate faster than people expect.
We have a real-life example in North Carolina. North Carolina’s emergency benefits ran out six months ago. Since that time, the state’s unemployment rate dropped 2 percent! During that same time period, employment in North Carolina increased 1.3 percent versus the national average of just .5 percent.
The Gambler
Vladimir Putin continues his quest to win over Crimea. He has been admonished by every major country in the world, but will not give in until after Crimea’s secession referendum on Sunday. The U.S. and other major powers have stated that this is an illegal vote that is contrary to the Ukrainian constitution. How this plays out in the near term is important, but the more interesting part of the story is the long-term implications of Russia’s aggression.
We’ve written at great length about the energy revolution here in the U.S. and the benefits that will accrue over time because of it. Much of Europe’s natural gas comes from Russia, with more pipelines in the works. This partnership is being questioned in light of Russia’s latest activities, resulting in our European allies turning their attention to “the Saudi Arabia of natural gas” (i.e., the United States). While the U.S. won’t be able to assist in the near term, we think recent tensions will cause additional pipelines and liquid natural gas terminals to be approved in the coming months.
Our Takeaways from the Week
- The labor market is stronger than people believe and will lead to rising interest rates in the coming months
- Vladimir Putin has overplayed his hand. While he may win the Crimea vote on Sunday, he just offended his country’s largest customer
- Uncertainty in China and Russia led to a sell-off in the S&P 500 of 1.7 percent for the week