Monthly Archives: May 2014

April 2014 Employment Situation

May 5, 2014 By in economics, employment, Employment Situation report, Portfolio management, Recent Market Action Tags: , , , , , , , 1 Comment

Last Friday at 8:30am est, as usual, the Bureau of Labor Statistics released its monthly Employment Situation.  The figures for April were, I think, unadulterated good economic news.  The country added +288,000 jobs last month, +273,000 in the private sector and 15,000 in government.  Revisions to estimates of job gains for February and March were upped by a total of +36,000, as late submissions from participants in the government’s elaborate Establishment Survey were tallied.

These figures seem to me to show that the horrible winter had a much greater negative effect on hiring (and consumer spending) than the consensus had thought.

Maybe “unadulterated” was an overstatement, though.  In addition to its Establishment Survey, a set of regular reports from a group of companies and government agencies that generate the job gain numbers, the BLS also does a Household Survey.  It’s a set of interviews with randomly selected individuals, from which, among other things, the BLS determines the unemployment rate.  The Household Survey numbers tend to bounce all over the place from month to month.  Last month, for example, the HS indicated that about a half million people stopped being discouraged workers and rejoined the workforce; this month the HS indicated all of them, plus another 300,000 got discouraged again and moved out of the workforce.

Why these people would go looking for work in the freezing cold and then stay home once the sun came out is unclear.  But that’s what the HS said they did.  And the lost 800,000–the reason the unemployment rate dropped to 6.3%–is the datum (like the word?) market pundits have seized on.

“They can’t be serious, can they?” is my first thought.  Then I remember the mind-dulling irrelevance of most financial tv/radio and conclude, sadly, that they can.

Why isn’t Wall Street greeting the Employment Situation more warmly?  I think it has nothing to do with the “lost” 800,000 workers.  Rather, I think investors know the ES numbers are strong–and are evidence in favor of the Fed’s belief that the domestic economy is swell enough to leave intensive care.  This implies that the slow move to higher interest rates will continue apace.

stock market implications

Potential acquirers have a new reason to speed up their activity to lock in financing for their acquisitions at low rates.  So M&A will pick up.

We’ll have more days like Friday–flattish overall market action, with strong moves, both up and down, in individual stocks based on company-specific news, especially the quality of their earnings reports.

 

 

China the largest economy in the world? ..that’s what the World Bank is saying

May 1, 2014 By in Asian economic development, China, Hong Kong Tags: , , , , , , 1 Comment

The World Bank has just released the findings of its International Comparison Program, derived from analysis of world economic data from 2011.  This is an update of the ICP results from 2005.

The data show that three years ago the US economy was only about 8% larger than China’s.  Given that China is growing by at least 7% per year while the US is barely expanding at all, the implication is that sometime in 2014 China will seize the #1 crown the US has worn since 1872 (according to the Financial Times).  That’s when the US surpassed the UK.

Generally speaking, the report shows the increasing prominence of emerging economies, especially in Asia.  That’s really no surprise, since that continent is home to two giants, China and India (#3 in the world).  In fact, the only news in the ICP report is timing.  Prior to this, and based on the earlier ICP data, most economic observers had expected China to pass the US within a few years.

Two caveats:

–the figures are based on total GDP.  Per capital GDP is still much higher in the US than in China, but the latter has over 4x as many people.

–the numbers are calculated using Purchasing Power Parity (PPP), not conventional GDP measures.

The difference?

Up until about a quarter century ago, economists took local currency GDP figures for each nation and converted them into a common currency, usually the US$, for comparison.   They used market exchange rates to do the conversion.  In the 1980s, however, people began to notice that this method was giving out crazy results.  China, for example, was growing at maybe triple the rate of the US at that time–but conventional GDP showed it shrinking relative to the US.

That’s how economists realized that measuring GDP through the ability to purchase internationally traded goods (which is, after all, what the exchange rate shows) wasn’t good enough.  So PPP, which measures the cost of purely domestic goods and services–like haircuts or movie tickets–as well, was born (you can find more detail in this post).

Significance?

It’s probably more social and political than directly relevant to the stock market.  On the other hand, it reinforces the fact that the health (or not) of the Chinese economy is of crucial importance to the rest of the world.  As investors, China is too big, and too fast-growing, not to try to have some exposure to.  The clear way to do so, in my mind, is through Hong Kong, which is the destination of choice for legitimate Chinese firms seeking a listing that will attract non-mainland investors.  My impression is that not many US investors have been willing so far to put in the time and effort needed to learn about it.

 

Tomorrow Keeping Score returns, after a month’s hiatus.