Stock gains don’t make up for continued sluggishness in economy, job market

The Dow Jones Industrial Average today briefly touched the 14000 mark, before falling slightly. As I write, it’s hovering right around that level, the first time it’s done so since late 2007. The broader S&P 500 is at a five-year high, about 3 percent off its all-time peak in October 2007. The Nasdaq is at a 10-year high, though it’s significantly lower than its tech-bubble peak. In all, though, these major indices finally are back to roughly where they were before the housing crash and Great Recession (as long as we don’t adjust them for inflation, that is).

Yet, earlier today, the Bureau of Labor Statistics announced the unemployment rate had ticked upward to 7.9 percent even though more people had stopped looking for work than found a job. At January’s rate of job growth (157,000 net jobs created), it would take until at least 2025 to regain pre-recession employment levels. At the rate for all of 2012 (an upwardly revised 181,000), it would take “only” until 2022, a decade and a half after employment peaked.

And yesterday, the Commerce Department said the economy shrank in the fourth quarter of 2012, the first negative quarter since mid-2009. The economy is an estimated 14 percent smaller than it would have been if it had grown since 2008 at the long-term average of 3.1 percent a year. That’s some $2.25 trillion of economic production that never came into existence.

The reason for continued market advances in the face of sluggish economic news might be summarized by this quote from the Wall Street Journal:

“Any not-bad news is helping this market,” said Jonathan Corpina, senior managing partner at Meridian Equity Partners, a New York brokerage. “If we get great news, good news, or okay news, it’s still going to make our screens green.”

“Not-bad” is not exactly indicative of a boom. If this quarter were to repeat last quarter’s performance, the above numbers are where the Obama Recovery would have left us: barely back to zero for investors, still well below it for job-seekers and economic growth.

This is the reality wrought by the primary economic policy of the past four years — trying to jump-start the private sector via government spending and monetary expansion. All the spending and expansion hasn’t translated into robust private-sector growth. Four years later, there’s little reason to believe a boom is just around the corner.

– By Kyle Wingfield

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557 comments Add your comment

Hillbilly D

February 1st, 2013
11:57 am

I’m one of those folks who thinks the Stock Market has little to do with the real world economy that most of us live in.

It’s just a casino for the financial types. For every winner there’s a loser and for every loser there’s a winner. It’s a lot like a poker game, you have winners and losers but the same amount of money leaves the table as came to it.

Stephenson Billings

February 1st, 2013
12:00 pm

““Not-bad” is not exactly indicative of a boom.”

No, but it’s the “new normal” under ObamAusterity. We all better get used to it while he’s still in office.

Stephenson Billings

February 1st, 2013
12:03 pm

Spinmeisters working overtime:

Dems Tout Claim: ‘Best-Looking Contraction in U.S. GDP You’ll Ever See’

http://www.weeklystandard.com/blogs/dems-tout-claim-best-looking-contraction-us-gdp-youll-ever-see_698863.html

Finn McCool (The System isn't Broken; It's Fixed)

February 1st, 2013
12:03 pm

Stock market performance is significantly determined by speculation and all that entails.

Most managers don’t hire or expand production based on speculation, they do it based on DEMAND.

Finn McCool (The System isn't Broken; It's Fixed)

February 1st, 2013
12:05 pm

Redo the bank regulations and ENFORCE them and you will see the turnaround begin.

Until the rampant deception and fraud is no longer “above the law”, no other parts of the economy will be able to thrive.

Stephenson Billings

February 1st, 2013
12:06 pm

But hey, Obama disbanded his jobs council so things must be looking up….

Aesop's Fables and other Lib Economic Theories

February 1st, 2013
12:06 pm

And now, let the tax hikes and obozocare kick in and kill what evers left of it.

Lil' Barry Bailout - OBAMAPHONE!!!

February 1st, 2013
12:10 pm

Bank regulations don’t create jobs. They destroy them. Free the banks to do what banks do, and make it clear there is not taxpayer backstop. Democrat bank regulations are nothing more than a campaign contribution shakedown scheme.

Lil' Barry Bailout - OBAMAPHONE!!!

February 1st, 2013
12:12 pm

The increase in the stock market is nothing more than all that new money pumped into the economy by the Fed chasing a fixed number of shares.

Trolls Bane

February 1st, 2013
12:12 pm

Could the record highs in the stock market be due to all the money being printed by the Fed? It has to have somewhere to go after all, and bonds are not paying anything.

Dusty

February 1st, 2013
12:14 pm

Oh no, not another one!! Now all our great business men HERE will be showing their prowess in the financial world. (and I had just written my great tribute to the French in the last blog!)

There just aint no justice. Viva la variete’. I go to seek the sunshine….

Stephenson Billings

February 1st, 2013
12:14 pm

Some analysts are predicting that the market will lose all its recent gains by the end of the year. Looks like another bubble….

Grasshopper

February 1st, 2013
12:15 pm

The next four years may turn out to be longer and gloomier than the previous four.

But at least we have a Biden-Hillary slug-fest to look forward to in a couple of years. I am sure they will have awesome things to say about how well we have been doing under the current regime.

JDW

February 1st, 2013
12:16 pm

@Kyle…”This is the reality wrought by the primary economic policy of the past four years — trying to jump-start the private sector via government spending and monetary expansion. All the spending and expansion hasn’t translated into robust private-sector growth. Four years later, there’s little reason to believe a boom is just around the corner.”

Yet you leave out one very important detail…the REASON behind the fourth quarter rate is almost ENTIRELY governmental. First spending decreased and second government inflicted uncertainty led to a decrease in inventories…net effect of just those two items -2.6%….rest of the economy grew at a 2.5% pace.

http://www.realclearmarkets.com/docs/2013/01/GDP1.pdf

As for the stock market…it is priced based on the perceptions of the investors. When they think than businesses will do well it goes up as it is now. Trailing PE’s are actually still a bit low.

Spin it how you want, private industry is recovering and as has been the case for several quarters overall growth is being dampened by REDUCTIONS in government spending/jobs and increases in government i.e. Republican led uncertainty.

Just Saying..

February 1st, 2013
12:17 pm

Lil’ Barry Bailout – OBAMAPHONE!!!
February 1st, 2013/12:10 pm/ “Bank regulations don’t create jobs. They destroy them. Free the banks to do what banks do, and make it clear there is not taxpayer backstop. Democrat bank regulations are nothing more than a campaign contribution shakedown scheme.”

Breaking news from the state with the most bank failures over the past two years…

Stephenson Billings

February 1st, 2013
12:18 pm

Stephenson Billings

February 1st, 2013
12:19 pm

But at least healthcare insurance prices will be going down… you know, the whole “bending the cost curve down”:

IRS: Cheapest Obamacare Plan Will Be $20,000 Per Family

http://cnsnews.com/news/article/irs-cheapest-obamacare-plan-will-be-20000-family

indigo

February 1st, 2013
12:20 pm

The Great Bush Recession is a gift that just keeps on giving.

td

February 1st, 2013
12:23 pm

Stephenson Billings

February 1st, 2013
12:14 pm

Some analysts are predicting that the market will lose all its recent gains by the end of the year. Looks like another bubble….

Newt said a couple years ago that the next big bubble will be government. I believe we are in that government bubble now and when it bust it is going to be ugly.

Grasshopper

February 1st, 2013
12:25 pm

“Yet you leave out one very important detail…the REASON behind the fourth quarter rate is almost ENTIRELY governmental. First spending decreased and second government inflicted uncertainty led to a decrease in inventories…net effect of just those two items -2.6%….rest of the economy grew at a 2.5% pace.”

Another argument for complete federal takeover of the economy perhaps? Oi…

Lil' Barry Bailout - OBAMAPHONE!!!

February 1st, 2013
12:25 pm

The recession ended nearly four years ago.

Obozo inherited a recovery and blew it.

Kyle Wingfield

February 1st, 2013
12:29 pm

JDW @ 12:16: Your numbers are wrong — it was -1.3% and 1.2% — but James Pethokoukis very ably deals with the substance of your objection here.

The highlights:

“Liberals are confusing a metric used to measure the size of the US economy with the actual US economy. What if GDP internals were reversed? What if government spending contributed 1.2 percentage points, and the private sector subtracted 1.3 percentage points? The overall GDP report would have been superficially the same, but in reality much, much worse with the real economy contracting.
“Or what if government spending added 6 percentage points, and the private sector subtracted 2 percentage points? The news headline would say GDP rose by 4%, but that growth would be illusory and unsustainable. …
“Instead of kvetching about how spending cuts are hurting growth, liberals should focus on the fourth-quarter drop in business investment — and the impact this year of the 60% rise in investment taxes. From 1994 through 1999, GDP growth averaged 4% a year. But government spending added, on average, just 0.3 percentage points to that total. The other 3.7 percentage points came from private sector growth, with business investment adding a healthy 1.3 percentage points to that total. (Also note that federal spending as a share of GDP fell from 21% of GDP in 1994 to 18.5% in 1999. Still the economy boomed.)”

JDW

February 1st, 2013
12:33 pm

@Grasshopper..”Another argument for complete federal takeover of the economy perhaps? Oi…”

No just another likely futile attempt to explain to some economically challenged folks that bit$#hing about overall GDP growth while tossing a wet blanket on 40% of the total ie federal, state and local government is illogical.

Finn McCool (The System isn't Broken; It's Fixed)

February 1st, 2013
12:35 pm

cns news?

LOL. One step above K-Mart News and 2 steps above Heritage Foundation

Cherokee

February 1st, 2013
12:37 pm

1994 to 1999?

Okay so who was President then? And what did he do to secure that kind of growth? Wait – I’ll tell you – he raised taxes on the wealthiest Americans.

Are you sure you wan to go there?

Matz

February 1st, 2013
12:37 pm

Um….Hurricane Sandy hit in the first month of the fourth quarter. While y’all’s lives may have gone on blissfully uninterrupted (save for the annoyance of pleas for contributions to relief funds — AS IF!), a sizable chunk of American commerce was interrupted. But hey, don’t let reality get in the way of a good blame fest. D’OH!

Don't Tread

February 1st, 2013
12:39 pm

You can’t spend your way out of a deficit, and the debt just gets bigger. But that’s not the point. The point is to spend enough money (on the right people, of course) to make the case for wealth confiscation later. You know, equality of outcome, and all that. :roll:

Some liberals are already floating that “wealth tax” idea around. I’m sure the 401(k) confiscation idea will be brought back up as well.

Cherokee

February 1st, 2013
12:40 pm

By the way, in addition to today’s solid jobs report for January, the numbers were revised UP for the last couple months – 247,000 in November, 196,000 in December.

I know you cons want to keep bad mouthing things – heaven forbid that you admit things are getting better – but once again you’re only fooling yourselves.

Grasshopper

February 1st, 2013
12:40 pm

It’s the 40% number that is the problem.

JDW

February 1st, 2013
12:41 pm

@Kyle…”James Pethokoukis ”

O dear the blogger for American Enterprise Institute vs Richard F. Moody, Chief Economist over at Regions…hummm which one to follow…the guy grinding politcal axes or the guy accountable to the shareholders and investors…thought about it…I go with the accountable one who says…

“together, these (government and inventories) took 2.6 percent from top-line growth”

JDW

February 1st, 2013
12:46 pm

@Grasshopper…”It’s the 40% number that is the problem.”

Yeah kind of like customers cause trouble for businesses…

Tall

February 1st, 2013
12:48 pm

JDW:

In the long run, both state and federal governments will have to reign in spending. They have no choice. You cannot print your way to prosperity. You are correct that it will contract the economy, but at the same time that debt has to be paid back. If you look at the current chart of the S&P 500 and compare it to the U.S. dollar ETF – UUP – they are counter symmetrical. As the dollar falls, the broad U.S. equity markets rise.

Lil' Barry Bailout - OBAMAPHONE!!!

February 1st, 2013
12:49 pm

JDW: 40% of the total ie federal, state and local government
————————–

Real Americans understand that that is the problem.

Lil' Barry Bailout - OBAMAPHONE!!!

February 1st, 2013
12:50 pm

The federal government spends $700 billion per year MORE than Our President Bush ever did, and yet the economy is worse.

Hmm…

Grasshopper

February 1st, 2013
12:51 pm

“Yeah kind of like customers cause trouble for businesses…”

They do if their credit is no good but you don’t find that out until after the fact.

By the way, your 12:16…linky stinky.

JDW

February 1st, 2013
12:59 pm

@Tall…”In the long run, both state and federal governments will have to reign in spending. They have no choice. You cannot print your way to prosperity. You are correct that it will contract the economy, but at the same time that debt has to be paid back.”

You are correct, in the long run, however we are focused on the short run at the moment. If you want to maintain a consistent growth rate then ideally when business growth lags government spends more to prime the pump then cuts back as the private sector heats up. That is what Clinton did. Reagan and Bush on the other hand continued to accelerate government spending even as the private sector grew. Then on top of that, instead of paying down debt they decreased taxes and ran it up higher.

What should happen now is government spends and in the future pays those debts with more cheaper dollars as the private sector improves. What is happening is Republicans are preaching austerity which decreases growth, complaining about the self fulfilling prophecy they created and scaring the heck out of everyone for no reason.

Stephenson Billings

February 1st, 2013
12:59 pm

“LOL. One step above K-Mart News and 2 steps above Heritage Foundation”

Still miles above Media Matters…. but whatever. I love it when Libs resort to denigrating the source….

JDW

February 1st, 2013
1:05 pm

@Grasshopper…”By the way, your 12:16…linky stinky”

Yes it is behind a password. Didn’t realize that. Go to

http://www.realclearmarkets.com/research_reports/

There you can click the link under Thursday…titled GDP Underperforms Very Mediocre Expectations

You should still be able to pull it up.

Just Saying..

February 1st, 2013
1:06 pm

“I love it when Libs resort to denigrating the source….”

Because listening to Glenn Beck really clears my mind…

@@

February 1st, 2013
1:07 pm

Back to zero?

Well at least Bush made it out of the starting gate and onto the track.

Obama, on the other hand, is still being paraded around in the paddock.

Off-topic.

“Hizzoner” Ed Koch has died.

Awwwww…I always liked him.

Matz

February 1st, 2013
1:08 pm

“I love it when Libs resort to denigrating the source….”

Because the source of something is SO irrelevant, after all.

Del

February 1st, 2013
1:10 pm

Wall Street is doing just fine while Main Street continues to suffer. Europe is seriously stumbling while we’ve been just stumbling along. The disconnect between stock market performance and our stumbling domestic economy is American based corporations are investing in foreign markets and not here. Beyond America and Europe other parts of the world are prospering and business will invest where the returns are the greatest. The Obama administration has blown dollars on stimulus, which hasn’t worked and have turned a blind eye to policies that could help recharge private sector growth rather than retard it. We have a president whose more concerned with gun control, taxing the wealthy, gay marriage, and immigration amnesty than he is about the financial well being of the nation. The fed keeps printing money and that masks the reality of deeper problems as the deficit grows. The perfect storm is building and when it hits the market will be coming down with it.

Tall

February 1st, 2013
1:13 pm

JDW:

A consistent private sector growth rate is that at which the general population expands or contracts. Here in the U.S. that is about 2% – 3% annually. Government spending has exceeded that. Clinton was projecting deficits in the range of 7% of GDP before he took office and tried to float support for a monetary stimulus when he was in office. The republican congress thwarted that.

The current FED policy is to reinflate the economy by weak dollar policy. It hasn’t worked because there is too much debt left over from the real estate crash. There is too much student loan and consumer debt. If hyperinflation occurs in this country, I hate to think of the consequences.

JDW

February 1st, 2013
1:17 pm

O’ and Grasshopper…”They do if their credit is no good but you don’t find that out until after the fact.”

Unless our $15 Trillion GDP gets trashed our credit and capacity to pay it is by far the best in the world. Unlike common perception government debt is NOT the same a private debt. Governments don’t die and thier tax base almost always increases.

So long as actual interest payments don’t consume too much of the budget there is no problem in the near term…say next 25 years. BTW interest expense as a % of the federal budget is about 6%. For those chicken little types that run around yelling Greece! Greece spends about 20% of thier budget on interest.

Kyle Wingfield

February 1st, 2013
1:17 pm

JDW @ 12:41: I didn’t cite Pethokoukis for the numbers. I cited the Bureau of Economic Analysis. See Table 2, “Contributions to Percentage Change in Real Gross Domestic Product.”

Here’s a summary:

Personal consumption expenditures: 1.52
Gross private domestic investment: -0.08
Net exports of goods and services: -0.25
TOTAL PRIVATE SECTOR: 1.19

Government consumption expenditures and gross investment (i.e., TOTAL PUBLIC SECTOR): -1.33

Thus, 1.2 vs. -1.3.

Unless you’ve just blatantly misquoted Mr. Moody, I’d suggest the shareholders and investors to whom he’s accountable ask him for answers. :-(

Kyle Wingfield

February 1st, 2013
1:19 pm

JDW @ 12:59: “however we are focused on the short run at the moment”

That’s the problem with the Obama Recovery. It’s so poor, we keep focused on the short run forever…

Cal

February 1st, 2013
1:20 pm

Bernanke’s pump priming does nothing but chase capital into job losers like gold, government bonds and factories abroad.

JDW

February 1st, 2013
1:29 pm

@Tall..yes our rate of growth should be close, slightly above but close to population growth.

Clinton was working with a Democratic Congress until 1994. I don’t recall any serious discussion of stimulus, just raising taxes to a reasonable level coupled with PAYGO were the key policy levers. He did benefit from reducing military spending as a % of GDP.

Yep, the problem created by the Duhbya crash was very big and has not be corrected as yet.

Of course hyperinflation in this country would be a huge problem however the risk of that is very low and should it come to pass a major factor will be the extreme uncertainty created by the failure of the Republicans to work for a resolution of ANY major issue. They need to accept “less than perfect solutions” and focus the public mind on moving forward not going backwards

Just Saying..

February 1st, 2013
1:30 pm

Wall Street is doing just fine while Main Street continues to suffer. Europe is seriously stumbling while we’ve been just stumbling along. The disconnect between stock market performance and our stumbling domestic economy is American based corporations are investing in foreign markets and not here. Beyond America and Europe other parts of the world are prospering and business will invest where the returns are the greatest. The Obama administration has blown dollars on stimulus, which hasn’t worked and have turned a blind eye to policies that could help recharge private sector growth rather than retard it. We have a president whose more concerned with gun control, taxing the wealthy, gay marriage, and immigration amnesty than he is about the financial well being of the nation. The fed keeps printing money and that masks the reality of deeper problems as the deficit grows. The perfect storm is building and when it hits the market will be coming down with it.

You mean like losing 6,000 points? Is that really possible?

JDW

February 1st, 2013
1:31 pm

@Kyle…”Unless you’ve just blatantly misquoted Mr. Moody”

I have not…you on the other hand have not read the post. I stated the COMBINATION of two factors were to blame.

Government

AND

Reduced Inventory (read private sector) CAUSED by government inflicted uncertainty.