05 Nov 2004 Our Challenge Lies Ahead
Fully aware of how deeply seated emotions are regarding the past Presidential election, and how much we are eager to get it behind us, I will be brief on that subject. However, it is important to observe what the market told us regarding our choice of President. Despite our deeply divided political convictions, the market made no secret of its druthers. In the months following the Republican convention in August, the S&P rose over 7%. The market’s strength was all the more remarkable given the steady bad news of record-setting oil prices, Iraqi war casualties, and rancorous campaign rhetoric.
If there was any doubt that the market was squarely behind the incumbent President Bush, proof came at 2:45 pm on Election Day when web sites posted information indicating that early exit poling showed John Kerry ahead in battleground states Florida and Ohio. The S&P 500 dropped over 1% and the Dow Jones Average dropped 120 points in minutes following the news of Kerry’s rise. But on Wednesday when traders awoke to the news that Bush had likely won, they reacted by taking the Dow Index up by 1.8%. That’s exit polling with dollars!
The reasons for the market’s movements are numerous and complicated, but some observations can be safely suggested. We know that markets hate uncertainty and we know that a new President Kerry would have represented significant uncertainly for the first few months. It would take time to build a new cabinet. There would be questions of Congressional gridlock with a Republican House and Senate, particularly in the face of numerous important economic issues facing this country and globe. And certainly not least; how big was the threat that terrorists might test the resolve of a new President? In short, the market voted early, often, and correctly for the new President. More importantly, it will continue to let us know how he is doing on his difficult agenda.
The big economic news today is tha tU.S. employers created 337,000 new jobs in October, almost twice the forecast. The government also significantly revised upwardly job growth for September and August (see the ‘Revised’ column in the Change in Non-Manufacturing Payrolls). The headline Unemployment Rate number rose from 5.4% to 5.5%, but I’m not treating that as a bad sign as more people entered the workforce, encouraged by recent growth. Please note that the Unemployment statistic is coded bold green indicating the trend of employment has been good. The recent news that Unemployment rose is while not necessarily bad in the short-run will need to improve in the coming weeks and months. Failure by the economy to offer the new entrants jobs will put a strain on growth.
Manufacturing jobs remain a challenge for our economy. That sector lost another 5,000 jobs in October after loosing a revised 14,000 jobs in September. But, the recent decline in the rate of productivity growth is a good sign on this front. It indicates that businesses have squeezed all they can from technology and now must hire new workers to fill demand. We will continue to closely watch these important indicators.
American voters in record numbers gave Mr. Bush four more years and better working majorities in both houses to address some major challenges; including Middle East peace initiatives, tax reform, tort reform, alternative energy, broad-band expansion, research and development, budget deficits, Medicare, and Social Security. He hinted in his victory speech that he would take his initiatives directly to the American people, as Ronald Reagan did, if Congress plays politics or drags its feet. We know from the last four years that he means and does what he says. It is my hope for this country and world that he will be able to bridge significant political and emotional differences, assemble and tap the world’s brightest minds, and effectively build consensus and legislate successfully through the challenges ahead.