Following my earlier post, it’s important to keep in mind that although an increase of 308K jobs is certainly welcome, it’s going to take a number of months of growth at this rate or higher to simply catch up with the effects of population growth and new workers entering the workforce (on the young end of the demographic pipeline).
The number of jobs needed simply to keep up with young adults entering the workforce has been estimated at approximately 150K per month. That means that about half of March’s jobs can be statistically “absorbed” by growth in the overall size of the workforce, with only 150K jobs going towards re-employment of unemployed workers. I’ve seen estimates (in Paul Krugman’s column, I think, and elsewhere) that we need a sustained rate of around 450K jobs per month to make headway and bring the unemployment rate back to down to its non-inflationary minimum.
So the jury is still very much out on whether the “jobless recovery” has shifted gears on us. I certainly hope it has, but the details in the BLS report for March aren’t as encouraging as the sound bite.
As for my comment that we’re in a “mini-bubble” with the stock market, I don’t have time for a detailed and rigorous analysis tonight, but I’ll make a few observations (since Joseph at the Corpus Callosum asked), for what they’re worth. First, the Dow and S&P 500 are near their highest values since the 2000 collapse, and much of that growth has come in less than a year. Second, in the last 12 months we’ve seen the 9th longest run of growth in the S&P 500 without a 5% decline in its history. Third, I just took a random 5% sample of the S&P 500 companies, and nearly all of the sample was at or near their 52-week high, regardless of whether they’d reported strong profits for YE 2003. Fourth, P/E ratios are still very high compared to historical averages. The market has recovered, and companies are making money, but stock price recovery has vastly outpaced the real economy and its recovery.
You might quibble with these observations, and I hope to have time soon to perform more analysis, but it’s hard to escape the conclusion that the Fed’s program of lower rates has worked. The real economy has gotten as much stimulus out of interest rates as it’s going to, if it’s really true that GDP is growing around 4 percent. At this point, low interest rates are simply acting to increase speculation, not as a stimulus. It’s time to cool things off, albeit slowly, and let the recovery be a “real recovery” and not devolve into speculation. The recovery doesn’t need another correction to cause the bears to scurry back into hibernation and corporate boards to pull back in expansion and investment plans.