Surprising jobs data a 'model mover' for some advisers

Today's employment report — showing that more than 200,000 jobs were created in December, lowering the U.S. unemployment rate to its lowest point in nearly two years — has some market watchers rethinking their outlook for the year ahead. "I don't know what the heck's going on here," said Brian Gendreau, market strategist at Cetera Financial Group Inc. "This seems like nothing but good news about the economy. The report from the Bureau of Labor Statistics showed broad-based job growth, with the only job losses in December coming from the government sector. But even that figure — showing 12,000 government jobs cut — reflects a slowing trend. With the unemployment rate for December measured at 8.5%, down from a revised November figure of 8.7%, the unemployment rate is at its lowest point since February 2009. "This is a cap to a really good week," said Mark Lamkin, president and chief executive of Lamkin Wealth Management, a $225 million advisory firm. "If this continues, it could get Obama re-elected.” It's already got Mr. Lamkin rejiggering his investment strategy. Pointing to improved consumer sentiment, December retail sales increases that came in slightly above expectations and new data from the Institute for Supply Management showing increased business activity, Mr. Lamkin is ready to move money into stocks. “Until this past Monday, we were 80% in cash, but we're now 50% invested and on Monday, we'll be adjusting that to be 70% invested,” he said. “This kind of data is a model mover for us, and this shows that GDP will likely be in the 3% range this year.” Mr. Lamkin has been expecting the S&P 500 to gain between 8% and 12% this year. Now, the latest jobs report — which showed 50,000 more hirings than predicted — leads him to think that the numbers could make the bottom end of his forecast moot. “Until recently we've been extremely cash heavy due to the European debt crisis,” he said. “But if these kinds of employment reports continue I think the market will come in at the high end of our forecast.” According to the jobs report, employment in the private sector rose by 1.9 million jobs in 2011, but government jobs were trimmed by 280,000. While the loss of government jobs does have a negative effect on the unemployment rate, it also represents a direction toward fiscal responsibility and a broader recovery, according to Brien O'Brien, chairman and chief executive of Advisory Research Inc., which manages $6 billion in assets. “The deleveraging of municipalities, states and the federal government is being accomplished in part by the shrinking employment levels in those areas,” he said. “A consistent rollback in government employment is important for fiscal stability long-term.” Defining himself as a “political liberal,” Mr. O'Brien added: “Government-created jobs make the budget problems worse. We need growth in manufacturing, construction and private enterprise.” Mr. Gendreau took the latest report to mean that a third round of quantitative easing and a double-dip recession “are now off the table.” He cautioned, however, that record corporate profits are, in large part, due to wages' being held down “because nobody is asking for a raise right now.” “I do expect this [employment] trend to continue,” he said. “The housing sector starts and sales have even seen three straight months of gains." He added: “It will still feel like a recession to some people.”