The Bureau of Labor Statistics of the Labor Department released its March 2012 Employment Situation report last Friday, while virtually all the stock markets of the world were closed for Good Friday. The US bond and derivative markets weren’t, however, and both reacted to the news.
The report said the US economy added 120,000 jobs during the month–about half the gains posted in each of the prior three. The main areas of difference were in: temporary help, which recorded 54,900 new positions in February and a loss of -7,500 in March; and in healthcare, which added 26,100 jobs in March vs. 52,800 in February.
revisions weren’t any help, either
February job additions, in their first of two monthly revisions, went up from 227,000 new positions to 240,000. January additions, first reported at +243,000 and revised up last month to +284,000, were revised down in the March report to +275,000. So net upward revisions of past months totaled only +4,000 extra jobs.
market reaction was swift, and negative
S&P 500 stock index futures dropped a bit more than 1% last Friday. Government bond prices regains much of the ground they had been losing over the past month.
Two reasons for the reaction: the March BLS figures showed only about half the gains of the prior three months, casting doubt on investor belief that economic growth in the US had reached a permanently stronger stage of recovery; also, the March job additions are at or below the level needed to absorb new entrants into the workforce, so they do nothing to help reduce the number of unemployed.
what significance do one month’s figures have?
Not a lot. Last August’s Employment Situation, for example, initially showed zero job growth in the economy–a figure subsequently revised up to +104,000 new positions.
Currently, other indicators–like consumer confidence and retail sales–have been rising, adding support to the idea that the strong ES figures from December-February are valid signs of an improving domestic economy and broadening economic recovery. The evidence I’ve seen from individual company reports tends to support this view. And the ADP employment report last Wednesday, quirky as it may be, showed +209,000 new jobs.
But, I think, the market has maintained an underlying suspicion that somehow the mild winter in the most heavily populated parts of the US has messed up the BLS’s seasonal adjustment mechanism, and that, as a result, the apparent economic strength is just work that usually must wait until March or April being done in January of February. So it’s very willing to believe the December-February ES reports overstate the job situation. On this view, March is just a return to reality.
I don’t think the current ES report is enough evidence to warrant changing an equity portfolio orientation away from the idea that 2012 will be a year of broadening recovery. We need more evidence.
If seasonal adjustment factors are responsible for skewing the ES numbers, it’s possible that March is the victim–not Dec-Feb.
The S&P 500 has moved up so sharply so far in 2012 that backing and filling for a while wouldn’t be surprising.
Stock price movements today will be interesting to analyze–especially to find economically sensitive stocks that outperform the market.
Typically, a strong economy with rising interest rates means weak bonds but a flat to up stock market. Will this rule of thumb hold in 2012? …by showing the other side of the coin, today may provide a valuable clue.