As more than 70% of U.S. GDP comes in the form of consumer spending, it’s difficult for the economy to grow without a healthy consumer base. Taking the logic one step further, it’s difficult to have a healthy consumer base when employers are cutting jobs. That’s why jobs growth typically equates to economic growth, creating demand and profits for publically-traded companies.
Here’s a chart that shows the relationship between the jobs and stock market well. The year-over-year growth of private sector jobs is shown in blue, alongside the year-over-year gains/losses of the Dow Jones Industrial Average (DJIA), shown in red.
As you can see, peaks in jobs growth typically occur alongside peaks in the stock market (I’ve highlighted such instances with red squares), while troughs in jobs growth correspond to troughs in the stock market (the green squares).
The peaks were evident leading up to the 2000 dot-com stock market crash and again leading up to the 2007/2008 crash. Highlighted in the orange square above is where we are today… and it’s a pattern we’ve seen before — just look within the red square I drew around the 2004 to 2007 period.
Jobs growth has failed to muster more than 2.5% year-over-year growth since 2000. We hit that 2.5% threshold in 2012 and have since drifted back down to 2% growth.
Judging from the past, it’s unlikely we’ll see a strong surge above 2.5% any time soon. It’s more likely that jobs growth will weaken over the next few years. And that doesn’t bode well for stock market gains.
Following a five-year, 123%-plus bull market in the Dow Jones Industrial Average, we’ve grabbed all the easy gains. Now it gets harder.
Don’t get me wrong. It’ll still be possible to get stock market gains — and jobs — in 2014… but neither are likely to come as easily as they have over the past three or four years.
That means flexibility is key, making profitable investments and in finding productive employment. We’re here to help you with the former. Unfortunately, with the latter, you’ll have to look elsewhere.