Stocks Advance as Job Growth Retreats

The "fox-trot economy" is what Raymond James market strategist Jeffrey Saut likes to call the economy's trend over the past five years. "Two slow steps, two fast steps."

That description seemed appropriate Friday: December employment rose by just 108,000 compared with Wall Street economists' average forecasts of 200,000. But revisions to October's and November's numbers added another 70,000 payrolls, which means the shortfall is not as bad as it first appeared.

On average, the economy has added roughly 200,000 jobs monthly over the past two months, pointing to a solid recovery from the job disruptions caused by Hurricane Katrina.

If the economic tempo Saut describes continues, jobs could weaken again in coming months -- before rebounding again later, of course. All in all, the economic recovery from the 2002 recession has been tepid and has almost run its course, the strategist believes.

"This recovery has fallen woefully short of all typical post-World War II recoveries," Saut says. "We are losing high-paying manufacturing jobs and not gaining an equivalent in high-paying service jobs."

The jobs trend has helped keep inflation down for a number of years. Still, with the automobile industry in disarray and talks of cutting pensions at General Motors (GM Quote - Cramer on GM - Stock Picks) and elsewhere, loss of benefits may lead to demand for more wages. On Thursday, for instance, IBM (IBM Quote - Cramer on IBM - Stock Picks) said it will stop contributing to employee pensions starting in 2008, instead putting funds in 401(k) plans, where employees must direct their own investing.

Even if employment growth has risen at a snail's pace, at some point the economy's motors will be running at maximum capacity, creating risks of overheating. And with the unemployment rate falling to 4.9% in December, the economy "is getting close to full employment," notes Joel Naroff, president of Naroff Economic Advisors.

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