Economic Growth = Job Growth

If we were to review just two economic yardsticks—job growth and layoffs—we would get a feel for what’s happening to the economy. It wouldn’t be precise, but it would be more like a back-of-the-envelope review. So, let’s look at both reports.

On Friday, the U.S. Bureau of Labor Statistics reported nonfarm payrolls rose by 531,000 in October, while August’s and September’s readings were revised significantly higher. The unemployment rate fell to 4.6% in October from 4.8% in September. 

Undoubtably, plenty of job openings have yet to be filled, but those openings, along with higher wages, are enticing some folks. The average 2021 monthly increase through October: 582,000.

Yet, it’s not simply rising payrolls. Layoffs are at a pandemic low, according to the Department of Labor. As of October 30, first-time claims for unemployment insurance were at 269,000. Outside of the last decade’s economic expansion, it’s the lowest weekly reading since 2000.

It’s important because fewer layoffs suggest economic growth may be accelerating, as on average, businesses are increasingly reluctant to lose employees.

Main Street vs investors disconnect

Most economic reports are signaling the economy is expanding. Yet, the general public is far from convinced. Gallup’s Economic Confidence Index for October registered its weakest reading since April 2020, according to its monthly survey.

Even as the unemployment rate declines, the public seems to be growing increasingly concerned about higher gasoline and food prices and spot shortages of various goods.

Be that as it may, investors are more focused on general economic growth, which supports corporate profits, and low interest rates, which offers little competition for stocks.

At last week’s Federal Reserve meeting, the Fed seemed to be in no hurry to raise interest rates next year, despite the jump in inflation. Instead, Fed Chief Powell vaguely deferred to economic performance as his benchmark for boosting rates.

Most observers give Powell high marks for the Fed’s actions during the early days of the pandemic, but, and let’s not get too cynical, might Powell be talking low rates as he hopes to be reappointed by the president for another four-year term?

His stint at the Fed is up early next year.

Bottom line, if we were to put it into a simple equation: profit growth plus low interest rates have been supportive of stocks.

On Friday, the three major U.S. market indexes closed at new highs, per MarketWatch.

If you have any questions or would like to discuss any other matters, please let me know.