Last week's mixed jobs data left many investors still deeply concerned about North America's employment situation, but be patient, says George Vasic, UBS strategist, the recovery in corporate profits squarely points to a rebound in jobs very soon.
"In our view, the best guide to the secular trend in employment has been profits, since real jobs can only be created once firms have the money to spend. Indeed, profits have led job growth by two quarters, and the good news is that profits turned positive in Q309," said Mr. Vasic.
Despite the severity of the recent recession, Mr. Vasic said profits troughed at higher levels than is normal historically.
"In Canada, he noted that profits are currently 9% of GDP, which compares to about 5% in 1991 and 7% in 1982. In the US, the profit share dipped to 8% before its recent rebound, which was also above the 2001, 1991 and 1982 troughs.
"The relatively high profit level means that the lag to jobs should not be longer than usual – and points to a lasting job recovery starting in the months ahead," he said.