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Labor of Love



Third quarter GDP blew away everyone's expectations. There are enough economists and strategists talking about the details of the report, so we instead wanted to tackle the apparent discrepancy between the strong economic reports and the various employment readings, because in order to achieve sustainable growth, and therefore higher equity prices, investors want to see the employment picture improve.

The seemingly poor readings in employment data have caused some to believe the current economic recovery may be temporary, and that without job growth, economic growth is unsustainable. We agree. We also want to point out that just about all the employment readings are trending positive and are not too dissimilar to the past two recessions. According to Christopher Low, the Chief Economist for FTN Financial, it is the trend that is most important, not the absolute number. History appears to agree with Chris' assessment.

In fact, if we can strip out the emotion of being in the middle of an economic transition period, the current labor recession and recovery look very similar to the last two recessions and recoveries. What we found interesting is that the bulk of actual improvement in many cases didn't take place until literally years after the declared end of the recession. The reason we bring this out isn't for economic opinion. It is simply to show that if someone is negative on the economy or equity market because the labor picture is perceived as not improving - that may be the wrong assumption. The most interesting aspect of this study was that most of the labor related indicators didn't start to dramatically improve until well into the economic recovery.

Again, rather than write our opinion, let us show you what happened to the various labor indicators and ultimately the equity market during the same time period...

Exhibit 1 - The Unemployment Rate

Exhibit 2 - Employment Growth

Exhibit 3 - Help Wanted Advertising Index

All charts provided by Baseline, Inc.

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