On Friday January 7th the Labor Department issued its monthly Employment Situation report for December.
The report indicates that the country added 103,000 new jobs in the last month of 2010. This gain breaks out in to an increase of 113,000 private sector positions and a loss of 10,000 government jobs. In the first of two monthly revisions, the November job gains were revised up from 39,000 to 71,000. The extra 32,000 jobs are 29,000 additions for the private sector and 3,000 new government workers. The final October figures, plus 210,000 jobs, represents an upward revision of 38,000 jobs from the November figure and 59,000 more than the initial report.
Combining the December gains with the November revisions, the ES indicates that there are 173,000 more people working today than we had thought a month ago.
That would ordinarily be considered as very good news, especially when taken in conjunction with a raft of other bullish economic indicators. However, ADP, the payroll outsourcing company that dominates that industry in the US, had announced a couple of days prior to the ES that its customer accounts were indicating that US had added 297,000 new jobs in December. So even with the upward revisions of prior data, 103,000 looks like a disappointment.
Wall Street’s reaction to the ES report will become clearer in the days to come. On Friday, the stock price response has been only slightly negative. My guess is that this is more due to belief that the ES numbers are being affected by a faulty seasonal adjustment to the raw data by government statisticians that understates the country’s true employment gains.
There are several reasons why the December employment numbers might trigger a correction in global stock markets:
–if the analysis I’ve been laying out in my series of posts on Shaping a Portfolio for 2011 is correct, the near-term upside in the market isn’t that large, even if the upcoming earnings season will prove to surprise on the positive side,
–taxable investors typically sell their losers in the last month of their tax year, i.e. December, and sell their winners in the following month. Given the strength of many economically-sensitive stocks in 2010, profit-taking this month would be understandable
–the employment numbers themselves were okay but not that great.
All this says a market correction would be understandable–and to my mind would not undermine the bullish case for 2011 as a whole. But it’s not enough to say a correction will happen. In a bull market, investors discount the good and ignore the bad. In a bear market, investors do the reverse. The next few days may tell us a lot about how bullish investment sentiment on Wall Street is.