the Employment Situation
Last Friday at 8:30 EDT, the Bureau of Labor Statistics of the Labor Department published its monthly Employment Situation report. The figures were, for the first time in several months, relatively lackluster.
the July numbers
The economy gained 162,000 new jobs during July, composed of +161,000 in the private sector and +1,000 in the public (media reports suggest that states and municipalities, buoyed by increasing tax revenues, are beginning to hire again for the first time in years).
The result fell short of the +175,000 or so that economists had been estimating, as well as of the +200,000 new jobs heralded by the ADP Employment report released two days earlier.
the revisions
The real disappointment, if that’s the right word for a report that has a margin of error of +/- 100,000, was in the revisions. May job gains, originally reported at +175,000 and revised up in the June report to +195,000, were revised down again to +176,000 in July. June job gains, pegged at +195,000 in the first of the three estimates each month’s data go through, were pared back by 7,000 to +188,000 in their July revision.
Taking the two months together, the revisions of past data erased a total of -26,000 positions.
On the other hand, the July jobs addition figure remains above the +150,000 level that marks the absorption of newly trained workers into the workforce. In other words, if we read the numbers as literally true, rather than estimates, the workforce took in a number equal to all the first-time job seekers + 11,000 long-term unemployed. That’s instead of the 25,000 estimated by economists. …not a big deal, especially since I think economists’ estimates amount to little more than an averaging of the results from the prior three or four months.
significance?
Although some pundits claimed the July data suggest the economy won’t begin to accelerate a bit come fall, as the consensus expects (one month’s data mean nothing, in my view), the financial markets took the so-so jobs report in stride. The S&P 500 rallied from an early decline of close to .5% to close up by +0.16%. Treasury bonds, whose yields have been steadily rising since the Fed began to hint it might slow the pace at which it injects extra money stimulus into the economy, rose a bit. But they still closed at a higher level than at any time during the past month, except for last Thursday.
Dan, great summary of the context behind the job report numbers. How do you view these macroeconomic factors in terms of your portfolio? My personal take is to remain cognisant but mostly ignore the data points except for the broadest of trends. And even then, I find the arguments linking the overall performance of the economy with the individual performance of my stocks very weak. Would love to hear how a professional money manager manages macro risks
Thanks for your comment.
In my experience, portfolio managers have lots of different ways to use macro data, depending on their styles and temperaments. Generally, though, American managers tend to be stock pickers and use macro indicators to gauge whether they should be more offensive or defensive. Traditional European managers, on the other hand, tend to pick geographical areas based on macro analysis and then buy things like banks, whose loan portfolios presumably give them exposure to general GDP trends.
In today’s more global world, it seems to me that a more important question than ever before for American managers is whether growth inside the US will be stronger or weaker than growth outside. I ask myself this all the time (having learned it from watching the way the Japanese market works).
This is because roughly half of the S&P 500’s earnings come from inside the US, half from outside. At present, the US is a beacon of economic strength, so I want to look for US-based companies that do most of their business here, as well as for foreign-based firms that have a large US-presence (these should be–and have been–stars in their home markets).
We may be reaching an inflection point, however, where the EU–which accounts for about 25% of the earnings of the S&P–begins to perk up. If so, this would mean that EU-based firms with dollar earnings would become less attractive, and US firms with euro earnings would become more.