Jobs data was released in both Canada and in the United States last Friday. Both sets of numbers were very disappointing as compared to what analysts and investors were expecting. Canada, for the first time this year, lost jobs in July. Overall, 9300 jobs were lost, of which on its own is not a large number, however 139,000 full-time jobs were lost. In the United States, 131,000 jobs were lost for the month of July. There were 200,000 government jobs lost of which many were temporary census workers.
On a positive note, the private sector added 71,000 jobs in the U.S., its seventh straight month of gains! With the numbers being as negative as they are, can we make money in a jobless recovery?
Some analysts have noted that in looking back at previous recessions in the United States, it took at least one year before the country was able to see job growth. Coming out of this most recent recession, the U.S. has been able to see job growth in six months. Based on this information, some could argue that job growth is actually going well relatively speaking and thus not as bad as the headline number would indicate.
During the recession, companies had to cut down on the amount of employees that they had, as employee salaries in most cases is are the greatest expense a company has. Small and large size business had to reduce expenses and “buckle down” during the height of the recession both here and in the United States. Since emerging from the recession, companies have begun to re-hire but at a slower pace. Instead of hiring, companies have chosen to get a little more out of current employees that they have on the payroll currently. Thus keeping their expenses down but still being able to generate more and more profits.
In my opinion, companies here in Canada and in the U.S. will not do much hiring until they see some clarity in the markets and an increase in consumer demand that goes beyond what can be accomplished by current employees. So, instead of corporations and small businesses in Canada and in the United States using the money they are making to increase research and development and manufacturing activity, they are just parking these funds until such time as they see the economy in a better state.
So with a high unemployment rate in both Canada and in the U.S. (U.S. unemployment rate is approximately 1.5% higher). Is it possible for companies to grow and investors to make money? I believe for the time being the answer is yes. There are many companies doing the right things such as cutting expenses and increasing sales (especially outside of North America). These are the companies shares you wish to own. I believe companies that have a competitive edge and are leaders in their sector should be able to turn out profits consistently even in difficult environments. If some of these companies pay dividends, that is even more of a reason to own them. In my opinion, this is how as an investor, you can continue to make money even when times are tough. As I have said on many occasions, if you are looking for growth, in my opinion, this is the best way to find it in today’s investment environment.
If you have any questions regarding the above article or are looking for an Investment Advisor to help you with your portfolio, please send me an email at asmall@dundeesecurities.com. I will be glad to speak with you!
Allan Small is an Investment Advisor with Dundee Securities Corporation, a DundeeWealth Inc. Company. This is not an official publication of Dundee Securities and the author is not a Dundee Securities analyst. The views expressed are those of the author alone, and are not necessarily those of Dundee Securities
