April 15, 2004

The March employment report marked a turning point in the financial markets. Up to that point there was a decoupling of the economic numbers such as real GDP growth and employment gains. Those who were bullish or partial to the President's economic program and/or Supply-Siders argued that the economic recovery was for real and the lack of employment gains was due to the high productivity. Furthermore, they argued that if the economy continued expanding the employment gains would follow. In contrast, the critics argued that last year's surge in real GDP growth was a mirage. In their views the higher GDP growth was a blip that could be largely explained by the surge in defense spending. The implication being that once the spending subsided the economy would roll over. The critics further argued that the lack of employment gains confirmed their views that the surge in economic activity was not sustainable. The employment report confirmed what we already knew: the economic recovery was for real and stronger than most people expected. The numbers led to a major revision of the economic outlook and the expected relative performance of different sectors.

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