World Week Ahead: Economy, jobs back in focus

The monthly U.S. jobs report, due at the end of this week, always has a way of refocusing investors’ attention.

«You can’t describe the economy as in a recovery until you have job growth,» Charles Lieberman, chief investment officer of Advisors Capital Management, LLC in Paramus, New Jersey, told Reuters.

And so whatever else happens economically-speaking this week it will pale beside Friday’s February jobs report.

According to surveys by Bloomberg News and Reuters, the world’s biggest economy shed 50,000 jobs last month, compared with a 20,000 drop a month earlier. The unemployment rate is forecast to have risen to 9.8% from 9.7%.

The importance of the labour market data is that the consumer is key to the outlook, accounting for about 70% of economic output. Until enough new jobs are being created it’s hard to see how consumers can begin spending in earnest again.

“The market is looking to move off center … and the employment report is probably going to be the most important of the week,” Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont, told Bloomberg.

“If that number comes in weak, it really confirms the strong unemployment claims data we’ve seen. If it comes a little bit better, it would indicate maybe we’re creating jobs at a fast enough pace to offset the claims,” he said.

There is a consensus building that the U.S. recovery, while imperfect, is on track and Warren Buffett is the latest to add his comments on what lies ahead.

In his annual letter to shareholders, Buffett forecast that the U.S. residential real estate slump would end soon. He also said the last year had represented a buying opportunity.

“We entered 2008 with US$44.3 billion of cash-equivalents, and we have since retained operating earnings of US$17 billion. Nevertheless, at yearend 2009, our cash was down to US$30.6 billion (with US$8 billion earmarked for the BNSF acquisition).

“We’ve put a lot of money to work during the chaos of the last two years. It’s been an ideal period for investors: A climate of fear is their best friend. Those who invest only when commentators are upbeat end up paying a heavy price for meaningless reassurance. In the end, what counts in investing is what you pay for a business – through the purchase of a small piece of it in the stock market – and what that business earns in the succeeding decade or two.”

Other investors also have been putting their money into play too. According to a poll by Reuters U.S. fund managers now have their greatest exposure to equities in 14 months.

Based on 11 U.S.-based fund management firms surveyed between February 11 and 24, they held an average 66.2% of assets in equities in February, up from 64.8% in January.

As well, the Investment Company Institute reported domestic and foreign equity funds had estimated inflows of US$1.11 billion for the week ended February 17. It was the first such inflow in February.

The increase in money flowing into equities did help recoup some of the losses recorded in January when Greece’s debt woes took centre stage.

For the month of February though, the Dow Jones industrial average ended up 2.6%, the Standard & Poor’s 500 gained 2.9% and the Nasdaq powered ahead by 4.2%. And it wasn’t just in the U.S. that advances were made: the FTSE 100 posted a 3.2% increase last month.

European stocks in particular had a good week last week as earnings accelerated and the intense focus on Greece eased somewhat.

With results that exceeded expectations, the FTSE last month received a boost from big banks including Barclays Plc and Royal Bank of Scotland Group Plc.

And there may be more gains ahead for Germany, which rallied 1.2% on Friday. The DAX slid 0.2%, reflecting concerns about Greece’s fiscal woes.

“Germany looks attractive, not only from an equity perspective but also from a macro point of view,” UBS AG equity strategist Karen Olney wrote in a report to clients according to Bloomberg. “A number of German companies have better potential for top-line growth, compelling scope for even better profit increases, and a less worrying macro framework.”

On the weekend, there were reports that Euro-zone governments were working toward a rescue package for Greece. EU Monetary Affairs Commission Olli Rehn was reportedly flying to Athens for more talks.