Despite warnings from everywhere that the recovery would be full of "stops and starts," the employment report from November and preliminary positive Holiday sales reports had the markets getting ahead of themselves before the December jobs report was released late last week. We are not only talking about the stock market. Bonds had fallen significantly in December, the dollar was rallying and oil prices were marching upward. These are all indicative of a strong recovery and many were expecting a positive employment report for December. Well, 85,000 jobs lost in December shows that we are not out of the woods yet. The Federal Reserve Board and most economists keep saying that, while things are looking better, the world will not turn rosy for some time.
The case of oil prices is one exception. We have had frigid temperatures in many parts of the nation since late December and this has given energy prices a substantive reason for increases on the upside. Not only is this a temporary factor, but higher energy prices such as $3.00 per gallon at a pump can actually slow the economy down as consumers curb spending on other purchases. It is expected that increased energy consumption by buildings will actually give a boost to economic growth in the short run, but once again that is temporary. Expect the sobering but not surprising employment report to spur more stimulus activity such as the "cash for caulkers" program as well as more support from the Fed with regard to keeping long-term rates down through purchases on Treasuries and mortgage-backed-securities on the open market. At least until the jobs picture turns positive permanently.
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