the US Employment Situation, September 2011

the report

On Friday morning, October 7, the Bureau of Labor Statistics released its Employment Situation report for September 2011.

The headline number:

–the economy added +103,000 new jobs last month, substantially more than economists had been expecting (not that they’ve been any great shakes recently in forecasting employment recently).

The figures break out into +137,000 positions added in the private sector, with–as has become commonplace in 2011–a net loss of jobs in state and local governments.  The September decline there was -34,000 jobs.

revisions were positive

The BLS Establishment Survey that generates the official employment figures consists mostly in data from large domestic companies.  The initial figures are revised in each of the two months following their first publication, as additional company reports are submitted.

The August figures, which created a sense of panic on Wall Street when they showed a net change in jobs of zero for the month, were revised up.

The original numbers were:

a gain of +17,000 jobs in the private sector (after subtracting the 45,000 Verizon workers who went on strike for a short while), offset by a loss of -17,000 in state/municipal.

The revised figures are:

+42,000 for the private sector, +15,000 for government, for a total gain of +57,000 jobs.  Add the 45,000 Verizon workers who went back on the job in September and grand total for the month is +102,000.  While that’s not enough to absorb all the new workers entering the labor force–to say nothing of draining anything from the large pool of the unemployed–it’s still an ok number by 2011 standards.  And it signals much better economic health than the goose egg initially posted.

July was initially reported as a +117,000 month, and broke out into +154,000 positions for the private sector and -37,000 for state and local government.  The first revision in August trimmed the headline number to +85,000, due totally to the government sector.  Private job additions were actually revised up a bit to +156,000.  But government layoffs were increased by -34,000 to -71,000.

The second revision in September boosts the headline figures to +127,000.   That consists of an addition of +173,000 new jobs in the private sector, offset by a loss of -46,000 jobs by government.

the bottom line

Based on the data we have now, the very negative August Employment Situation report appears to have been a statistical aberration.

By the modest standards of the current economic recovery, July was a blockbuster time for hiring in the private sector.  And during the three most recent months the economy added a total of +352,000 jobs, an average of +117,000 in each period.  The recent positive trend in domestic retail sales  (up more than 5% year on year in September for major retailers) seems to me to reinforce this mildly bullish view.

Running to counter to this trend is the experience of state and local governments, which have together been averaging layoffs of -20,000 a month recently.  The problem here, I think, is that governments were very quick to spend the windfall tax gains achieved during the early-decade housing boom, regarding these years of extraordinarily high income as the “new normal” level of tax receipts.  We still have some way to go, in my opinion, before governments will have shrunk back down to a size that revenues can support.

implications for stocks

It now looks to me like the Wall Street selloff that the August Employment Situation prompted was a mistake–and that the US economy is in considerably healthier shape than bears would have us think.

If so, this realization creates a dilemma for portfolio managers who reacted so negatively to that report.  They have doubtless “explained” to their clients that they acted heroically in dumping out stocks when they did.  Can they now buy back the stocks they panicked out of a few weeks ago at the same or higher prices?  No, not without looking very foolish if their customers notice what they’re doing.   From a client retention point of view, their best strategy is to wait a few weeks and perhaps dub their buybacks as portfolio positioning for 2012.

Therefore, while I expect the September Employment Situation to have a positive effect on stocks, particularly in the Consumer Discretionary sector, that effect may be delayed until later in the year.

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