the report–+115,000 net new jobs
Before the opening of stock trading on Wall Street last Friday, the Bureau of Labor Statistics of the Labor Department released its monthly Employment Situation report for April 2012. According to the ES, the US economy added 115,000 new jobs last month. That was made up of +130,000 net new positions in the private sector, offset by -15,000 layoffs by state and local governments.
While a reasonable performance, the figure was substantially weaker than both the median estimate of domestic economists (which was for a gain of around 160,000 new jobs) and the stellar performance of the winter months, whose gains comfortably exceeded 200,000 each.
revisions were positive
Job additions for February were initially reported as +227,000 (+233,000 for the private sector, -6,000 for the public). That figure was revised up in the March report to +240,000 (+233,000 private, +7,000 public). The final numbers, reported in the April ES, were revised up again–to +259,000 (+254,000 private, +5,000 public).
Job gains for March were initially reported last month as +120,000 (+121,000 private, -1,000 public). The April revision boosted that figure to +154,000 (+166,000 private, -12,000 public).
Taking February and March together, April revisions boosted the number of net job additions during those months by 53,000 (+66,000 in the private sector, -13,000 in the public).
Wall Street was disappointed
Investors had been hoping that the April ES would reestablish the more favorable job gain trend of last winter, or at least show that the low reading in March was a fluke. Arguably, the +34,000 upward revision of the initial March figures did that. But all eyes–or at least those of short-term traders–appear to have been focused entirely on the current month figures instead.
As a result, the S&P 500 declined by 1.6% for the day.
why the slowdown in job growth?
Three explanations appear to be on offer:
1. The US economy is doing the same thing it did in 2010 and 2011, lurching into a “seasonal” deceleration in economic growth.
2. The unusually warm winter weather in normally cold regions of the US allowed an early start to what’s normally springtime work. Construction or home renovation, for instance. This shifted job creation ordinarily seen in March or April into January and February. If so, what we’re seeing now is temporary payback. The real job growth trend is +160,000/+180,000 new positions a month.
3. A third possibility comes from a Goldman report I’ve only read about in a Gavyn Davies blog for the FT. The idea comes from Okun’s “Law,” the suggestion that changes in the workforce move in line with the rise and fall of GDP. In the Great Recession, argues Zach Pandl of Goldman argues, layoffs were much heavier than the fall in GDP warranted. Similarly, during the recovery, job gains have been a lot greater than a tepid economy would justify. However, we’ve recently reached the point where all the “extra” workers shed by companies during the downturn have been rehired. Therefore, from this point on job gains will again move in lockstep with rises in GDP. In other words, they won’t be much to write home about.
does it matter for investors?
For what it’s worth, I think there’s a small effect from warm winter weather in the ES data but the rest of the apparent weakness in March and April is a fluke–probably having to do with the seasonal adjustments Labor Department economists make to the raw data.
That’s not the important investment issue, though. We all have to ask ourselves how much difference having the correct explanation for the April jobs figures makes for our equity investment strategy. After all, we’re back to record-high levels of real GDP in the US even with a high level of unemployment. The long-term unemployed are a political and social problem. They aren’t necessarily a stock market one.
I can think of two ways in which interpretation of the ES results makes a difference:
–in the (unlikely, to me) case that the US economy is beginning to stall, or even to shrink a bit, a defensive stance is called for
–if there’s going to be negligible job growth in the US from this point on, then the strategy of 2009-2010 of emphasizing emerging markets and domestic firms that cater to the global affluent will likely be the right way to go.
Otherwise, the pattern of market action over the past eight months or so is going to continue–slow but steady outperformance by IT and by consumer discretionary firms that appeal to the broadest spectrum of domestic customers.