the June 2011 Employment Situation report

The Bureau of Labor Statistics released its June 2011 Employment Situation report just before the start of New York trading on Friday.  In essence, the data confirm the message from the May report that job creation in the US has slowed dramatically from the 200,000+ per month clip of February-April.

the data

The June report indicates that the domestic economy created 18,000 new jobs during the month.  The private sector chipped in 57,000 positions, 53,000 of them in services and the remaining 4,000 in goods production.  Governments laid off a net 39,000 workers.

Also, April and May figures were revised down.    For May, reported private sector hiring dropped from the original +83,000 to +73,000; government layoffs increased from 29,000 to 48,000.  April private sector gains fell by 10,000 to +241,000; government layoffs increased by 5,000 to 24,000.

The May and June Employmnet Situation reports are similar in three respects:

–hiring in goods-producing industries has dropped from a 40,000 monthly pace earlier in the year to just above zero;

–service industries, which had been adding over 200,000 new workers a month, have dropped to under a third of that, and

–government layoffs have accelerated by 10,000-15,000 jobs a month.

why the slowdown?

No one really knows.  It’s possible that part of the jobs falloff is due to supply-chain disruptions caused by the devastation in Fukushima in March.  But that would account for at the very most for a third of the decline.  It’s also possible that employers are worried about the parlous state of politics at home or in the EU.  Or the current state of affairs may simply be the standard pattern of recovery after a devastating financial crisis.

As I observed a month ago, the Employment Situation numbers conflict with more positive employment data from private sources.  Since then, we’ve seen June retail sales figures, which were surprisingly strong. And in its admittedly highly volatile employment report, payroll company ADP said a few days ago that it thinks the US economy added 157,000 jobs in June–most of the gain due to a surge in service sector hiring.

the stock market meaning?

There was a lot of hand wringing by TV commentators on Friday morning about the BLS announcement.  The lack of job growth in the US also made the Saturday front page of all the newspapers I read.  This is partly because bad news sells, partly because the bullish EDP report fooled many economic “experts” into substantially raising their BLS estimates at the last minute, leaving them with egg on their faces.  True to their usual form, although the BLS report was a disappointment, pundits made it seem that the whole problem was the economy and not their estimates.

To my mind, Wall Street trading tells a somewhat different story than the media.  Specifically,

–on Thursday, the S&P reacted to the positive ADP report by gaining 1%.  On Friday, the market rallied from session lows just after 11:00 am to close down .7% on the day.  In other words, for the two days the New York market was up.  That wasn’t the very negative result one might have expected, based either on the poor BLS report or the palpable anguish of talking heads.

–I hold ten US stocks in the actively-managed portion of my taxable stock portfolio.  Four of them were up on Friday, and by enough to put the collection of ten in the positive column for the day.  Admittedly, one of my main objectives over the past couple of years has been to find US-listed companies with substantial exposure outside the US.  Still, it seems to me that the selloff on Friday was much less across-the-board than the one that greeted the May BLS report.

–add to this the fact that the rally came on a Friday afternoon, when (very) short-term traders are deciding whether to hold positions over the weekend.  A late afternoon selloff–not a rally–would have been the more natural outcome if traders were feeling bearish.

We’ll see more when trading resumes on Monday.  But so far it seems to me Wall Street has shrugged off the BLS news to a greater extent than I would have expected.  It may be that Wall Street is beginning to make two distinctions I think are important to understanding the profit potential of US-listed stocks.  They are:

–the difference between the structural social/political/ethical problem of having an extra 5% of the workforce unemployed for an extended period of time, and the stock market issue of the spending behavior of the 90%+ of a (growing) workforce that is beginning to get compensation increases for the first time in a few years; and

–the difference between a domestic bond market whose performance is dependent on the strength or weakness of the US economy, and a stock market, half of whose earnings come from outside the US and whose domestic half has virtually no exposure to housing, real estate, construction or autos.  (By the way, this stock market structure is the norm for every other major equity market in the world.)




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