Historically, the American economy has grown in fits and starts. Periods of expansion are followed by periods of contraction, called recessions. Recessions are characterized by slowing economic growth, weaker corporate profits and higher unemployment. Expansions are accompanied by stronger economic growth, rising corporate profits and lower unemployment.

If the recession is over, why is employment still weak?

The most recent recession, which began in December 2007, ended in June 2010.1 In December 2010, The Economist reported that profit margins of American companies have already reached levels that took much longer to attain in prior economic expansions.2 Regardless, many Americans question whether the recession has ended because employment gains have not been robust. Employment is a lagging economic indicator, which means it improves only after recovery has begun. A recent survey by Manpower International, a temporary employment firm, found that more American employers expect to add workers during the first quarter of 2011. In fact, employers were more optimistic about hiring than they have been since the last quarter of 2008.3

How will the stock market behave?

Although the severity of the market's swings during the recession may have been unnerving, the basic principles of investing have not changed. It is still important for investors to:

• Allocate assets
  A well-chosen asset allocation can help ensure that investors don’t take on too much risk.
• Diversify well
  Diversification can help reduce overall fluctuation in the value of a portfolio, even if it does not protect against loss in a down market.
• Buy low
  By making ongoing contributions to investment accounts, investors buy more shares when prices are low and fewer shares when prices are high - a strategy that produces a lower average price per share.

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Trusted Advice Along The Way

• 1 National Bureau of Economic Research, U.S. Business Cycle Expansions and Contractions
• 2 The Economist, Gimme a “V,” Companies are making profits faster than they are hiring workers
• 3 The Economist, Employment Outlook, December 11-17, 2010