Dow Jones performance 2011

[Red Arrow]

The Dow started the month of September in 2012 well. Normally, September is a down month for the stock market but I believe this year will be different. The Dow is up 5000 points (61%) since Obama took office and I believe that this week it will gain 400 or 500 more.
The economy is strong.

There is no denying that the DOW took a big hit just as Obama took office.  Being up 5000 points and 61% still doesn't bring it up to the levels of 2007 and early 2008.  We all have our opinions on why the market crashed but the point now is that being up 61% from a really bad position is not necessarily a fantastic position.

[cynical]

It's a serious question, Red, not an attempt to be snide or snarky.  Profits are up, but jobs are being added slowly.  I'll tell you frankly that I'm not conversant in finance and economy matters.  I blundered through Econ101 and don't remember a bit of it.  Her name was Laurie.  She sat right beside me and...well, never mind.

Sometimes we're too quick to pull the politics-is-responsible-for-everything trigger.  I'm trying to avoid that.

This question goes to the heart of the supply-side/demand-side issue. Corporate profits, with some exceptions such as American Airlines, have been very good, far better than under the Bush administration. Companies have lots of cash in a low interest rate environment, meaning that they don't need to pay high dividends to compete for investment but can't profitably lend the money to suitably low risk borrowers. What can they do with the cash? Contrary to what the supply-siders tell us, the last thing a company will do is to use its cash reserves to boost production either by hiring more workers or by investing in more efficient machinery if there is no demand for the increased production. The past 35 years have given investors lower and lower taxes, especially on investment income, while wages have declined significantly in real terms. For reasons that have escaped everyone except the economists, the managers of all of that pent-up cash have found that the only prospect for a healthy return on investment is in emerging markets, which is part of the reason that Capital has been invested in markets such as China. It's not only the low wages, it is access to a market with huge untapped demand. Apple doesnt only want to manufacture iPhones and iPads in China, it wants to sell them there. I do not expect American companies to hire additional American workers until a domestic demand for increased production exists. That demand is increasing, but very slowly and cautiously. Investors aren't the only risk-averse players in this game.

Politics is not responsible for everything, but fiscal and monetary policies that intentionally hold down wages and encourage outsourcing have consequences on the demand side. The problem is made worse by the substantial reduction in public sector employment.

[nathanm]

We are Japan at the moment, just with extra unemployment thanks to a different conception of the employer/employee relationship. Low demand causes slack investment which begets further low demand. The low economic activity leads to persistent government deficits and the unwillingness to use significant enough stimulus in a single shot and the failure of the currency to depreciate leaves the economy stagnant. Just like the Fed has to act as the lender of last resort to keep a functional banking system, the government needs to act as demand of last resort.

Turns out there's quite a bit in the literature examining the effectiveness of deficit neutral stimulus. Apparently, it works reasonably well in just our situation. Normally, the increased taxes drive down investment. However, in an environment where there's plenty of idle cash and little demand, it doesn't actually change private sector investment by nearly as much as the increased government expenditures drive economic activity.

[Conan71]

The Dow started the month of September in 2012 well. Normally, September is a down month for the stock market but I believe this year will be different. The Dow is up 5000 points (61%) since Obama took office and I believe that this week it will gain 400 or 500 more.

The economy is strong.

Corporate profits are strong.  The economy is still suffering as a result of sustained high unemployment and out of control energy costs.

It will be interesting to see if the employment trends suddenly reverse if Romney is elected, or we are truly at our new "norm" for employment.  So many companies have adapted to doing more with less workforce.  I don't think CEO's and business owners aren't hiring out of spite for Obama and Democrats.  Obama's message has not given business much to be confident about.  There's also still a lot of unanswered cost questions regarding Obamacare.

In previous economic recoveries, companies would start expansion while labor and materials are cheaper with optimism better days, as it relates to demand, are ahead.  That simply does not seem to be happening.

[nathanm]

There's also still a lot of unanswered cost questions regarding Obamacare.

This is utterly absurd. There have been unanswered and unanswerable cost questions regarding health insurance for decades. Some years it would go up 5 or 6%, some years 15%, and the numbers were unknown in advance.

Also, average hours don't really show employers doing more with fewer people. The stats show that less is being done, probably because of a lack of demand. If it were just reluctance to invest and/or hire, existing employees would be working more hours, but hours worked have been stable for the past couple of years now, at a lower level than before the financial crisis.

[Conan71]

This is utterly absurd. There have been unanswered and unanswerable cost questions regarding health insurance for decades. Some years it would go up 5 or 6%, some years 15%, and the numbers were unknown in advance.

Also, average hours don't really show employers doing more with fewer people. The stats show that less is being done, probably because of a lack of demand. If it were just reluctance to invest and/or hire, existing employees would be working more hours, but hours worked have been stable for the past couple of years now, at a lower level than before the financial crisis.

I'm telling you what business people are saying.  Maybe you should apply to be the Obamacare Czar so you can eloquently 'splain it to them.

[nathanm]

I'm telling you what business people are saying. 

People say lots of smile that doesn't make sense. I try to listen to the things that do make sense and discard the stuff that doesn't. Again, if the thing that was holding them back was worry over HCR, they'd still have no reason to avoid working existing employees longer if the business were there. It's not just that the argument doesn't make logical sense, it's that it's not borne out by the numbers. Average weekly hours have been essentially flat.

[heironymouspasparagus]

We have had a 1 million jobs per month swing in the last 4 years.  Not enough, but substantial.  -800k to about +200k.  Well, except for last month's 96k.  That's a serious swing in economic activity.