Companies are showing enough confidence to pave the way for falling unemployment and rising stock prices, according to Tobias Levkovich, Citigroup Inc.’s chief U.S. equity strategist.
The CHART OF THE DAY features an indicator he used to draw the conclusion in a March 30 report: an index of small-business hiring plans, as compiled each month by the National Federation of Independent Business.
The index is compared with the Labor Department’s monthly jobless rate, which has declined by 1.7 percentage points from a peak in October 2009. In the chart, the NFIB index is inverted and the jobless rate is offset by a year for purposes of comparison. The hiring gauge shows the percentage of Americans out of work will fall further in the next 12 months, according to Levkovich.
“Lower unemployment rates lead to broad stock-market gains,” the New York-based strategist wrote. Financial stocks tend to rise along with the market, he added, while shares of homebuilders, retailers and other companies that depend on consumers’ discretionary spending often fall instead.
Capital spending is poised to rise with hiring, the report said, citing data for 735 U.S. companies outside of finance that Citigroup’s analysts follow. The figures point toward 11 percent growth in outlays for 2012, exceeding a 6 percent increase seen earlier this year.
“Business people are hiring and spending corporate cash,” Levkovich wrote. “Indeed, even fears around rising gasoline prices have not held them back.”