By: Dr. Mike Campbell
Economics is a cyclical beast, spinning between periods of boom and bust. The magic of it is that nobody ever really knows when one cycle will end and another start; nor how strong the growth or contraction will be. In light of this truism, we are on the way into another boom cycle; the only questions being when will it kick in, how long it will last and how high will the markets go before the next downturn?
One of the economic facts of life is that employment always lags recovery since businesses wish to be sure that they are on solid ground before taking on new staff to meet increasing demand. For this reason, the fact that America created nearly a quarter of a million new jobs last month is surely good news. The figure, 243 000, was the best level of job creation seen in the US for nine months, beating analyst’s expectation by 93 000 jobs. The level of unemployment in the US now stands at 8.3% of the workforce; its lowest level in three years. This could well be good news for President Obama as the 2012 election process starts to kick into gear. The level of unemployment has now fallen back to where it was when he took office.
Unemployment figures have become hideously complex in most democratic countries and the count will have fallen because some people are no longer actively seeking employment. The US Congressional Budget Office has issued a more pessimistic report which predicts that unemployment is likely to rise towards the end of this year, hitting 9% and peaking at 9.2% in early 2013. However, the hard figures released for January were enough to trigger a stock market rally with the Nasdaq hitting its highest level since December 2000. As we reported yesterday, most of the major indices around the world closed significantly higher on the strength of the figures. Time will tell if the improvement can be sustained or if this is yet another false dawn.