Employment Situation, February 2017

This morning at 8:30 est, the Bureau of Labor Statistics of the Labor Department issued its Employment Situation report for February 2017.

The Bureau estimates the economy added 235,000 new jobs last month.  This is a very strong result.  However,it is most likely influenced by unseasonable warm temperatures in February, which typically allow outdoor construction work to get started earlier than  usual.  So maybe the “real” figure should be 200,000–which would still signal significant economic strength.

Revisions to the prior two months’ data were +9,000 positions.  Most other data–like the labor participation rate, the number of long-term unemployed…–were relatively unchanged.

The unemployment rate fell to 4.7%, a level that twenty years ago would have set off alarm bells warning of incipient wage inflation.  Nevertheless, wages grew at the same steady yearly rate of +2.8% we have been seeing for a while, and are showing none of the acceleration that labor economists fear.

We know from the BLS’s Job Opening and Labor Turnover (JOLT) survey that the number of current job openings is more than 20% higher than at the pre-recession economic peak in 2007.  This makes the lack of wage acceleration look even more peculiar (more about this on Monday).

Nevertheless, the Fed has made it clear that it thinks there’s nothing further that maintaining emergency-room low interest rates can do to stimulate the economy.  That ball in in the court of fiscal policy, the province of Congress and the administration, where it has resided unmoved for several years.

Especially given Mr. Trump’s promises of corporate income tax reform and renewed infrastructure spending, the biggest economic hazards lie in not continuing to normalize interest rates.

So I think we can pencil in three hikes of 25 basis points each in the Fed Funds rate both this year and next.

 

 

Employment Situation, December 2016

The Bureau of Labor Statistics of the Labor Department issued its monthly Employment Situation  this morning at 8:30 est.

According to the release, the economy gained 156,000 new jobs in December, more than enough to absorb new entrants into the workforce.  Revisions to October figures were -7,000 jobs, to November’s, +26,000, meaning the net revision to the prior two months’ data was +19,000 new positions.

While this is a so-so result, we should consider how much may be due to random statistical variations in the data and, more importantly, how much comes from the difficulty employers are apparently having in finding qualified candidates who are currently unemployed.

More evidence that the latter is becoming a more significant issue comes from the rising trend in average hourly wages the BLS is also reporting.  for the 12 months ending in December, wages have been increasing at an inflation-beating 2.9% rate.  If we, methodologically incorrectly, take the December wage gains alone, the year on year increase is 4.6%.

The bottom line:  good news, and evidence the Fed will likely take as prompting it to raise the Fed Funds rate again sooner rather than later.

The Employment Situation, November 2016

The Bureau of Labor Statistics of the Labor Department released its monthly Employment  Situation report at 8:30 est this morning, as usual.

The results were good.  178,000 net new positions were filled during the month, which is right at the average monthly gain so far this year.  Net revisions were slightly negative, subtracting -2000 positions from prior months’ employment estimates.  The BLS also said wages made no upward progress during November, after having jumped a lot the month before.

The only out-of-the-ordinary figure was the unemployment rate, which fell to 4.6% from 4.9% in October.  We’ll likely find next month that the November figure comes from transitory statistical strangeness that will have already disappeared.

What to make of this ES?

Nothing, really.  In fact, I think that as stock market investors, we should no longer be monitoring the ES for signs of potential labor market weakness.  Instead, we should be on the lookout for indications of surprising strength, possibly in the number of new hires, but more likely in the rate of wage gains.

That’s because I think we’re well past the point where we’ve got to guard against economic weakness.  Instead, we’ve got to be alert for signs of the more likely threat–that the pace of interest rate rises will accelerate from the currently anticipated once-in-a-long-while pace..

The first step in adopting this new mindset, I think, is to consider what the endpoint for increases in the Fed Funds rate–and the resulting terminal interest rate point for 10-year Treasuries, which is the closer substitute for stocks in long-term investors’ portfolios–will be.

More on this topic on Monday.

the Employment Situation, September 2016

At 8:30 edt this morning, the Bureau of Labor Statistics released  monthly Employment Situation report for September.

The ES estimates the US economy created +156,000 new positions last month.  While enough to absorb the average number of people leaving school and entering the job market for the first time, the figure is below the average of +192,000 jobs created over the past three months.  Revisions to the prior two months’ estimates were also negative, subtracting a total of -7,000 from prior tallies.

For what it’s worth (not much, in my opinion), labor economists had been predicting the figure would come in at +172,000.

It’s important to remember, though, that the unemployment figures are the result of subtracting the number of job gainers from the number of job leavers.  The monthly figure for each is around 3.5 million; the difference between the two is statistically significant only +/- 100,000.

Positives in the report:  wages continue to rise at 2.6% annually; employment in the mining industry, which includes oil and gas, may be bottoming after two years of decline.

 

The real significance of the September ES is in its inoffensiveness.  There’s nothing in it that could even remotely be considered as a check on the Fed’s desire to raise short-term interest rates before yearend.

 

 

 

Employment Situation, August 2016

This morning at 8:30 edt the Bureau of Labor Statistics of the Labor Department released its monthly Employment Situation.  This was a so-so report.

The economy added +151,000 new jobs last month.  Revisions to the prior two months were -1,000, or insignificant.  Wages were up, but only slightly, maintaining their growth of about 2.4% annually.  Service industries continued to gain; manufacturing and construction were flattish.

The results did fall short of Wall Street economists’ estimates of a +181,000 advance, but to my mind this says more about the economists and the difficulty of forecasting the jobs figure precisely than it does about the jobs.

It there’s one thing I take from it, it’s that the period of turbocharged jobs gains–well over +200,000 a month–we were experiencing earlier in the year is now behind us.  If I were forced to attribute this relative slowdown to anything, it would be the strength of the dollar.

For me, the most curious thing about the report is that it appears to have sparked a rally on Wall Street, on the notion that this report makes it less likely that the Fed will raise interest rates later this month.  This makes little sense to me, although I’ll take an up day rather than a down one any time.  Personally, I think the Fed risks accusations of trying to influence the election if it acts before November, so not matter what its rhetoric it’s unlikely to move now.  Looking at the character of gaining stocks, it’s primarily smaller doing better than larger, something that mostly happens when rates are rising.

This is the first time in a long while I’ve been nonplussed by market movements.

 

Employment Situation, July 2016

This morning at 8:30 edt, the Bureau of Labor Statistics of the Labor Department released its monthly Employment Situation report for July.

The numbers were strong.

The economy created +255,000 new jobs last month.  Revisions to the prior two months’ data were also positive.  The very weak May figures that caused financial markets alarm bells to ring were bumped up from +11,000 new positions to +24,000; the extra-strong June results edged higher to +292,000 from +287,000.

The effect of this ES report, I think, is to dissipate all the concern about incipient economic weakness that caused the Fed to refrain from raising interest rates at its last two meetings.

Although I’ve never been a big fan of financial companies, traditional banking operations, where interest margins on loans have been severely squeezed by years of easy monetary policy, would seem to me to be the biggest beneficiaries of this development.  My guess is that the ES will also encourage the stock market to continue its drift away from mature cash-generative companies to more capital investment-intensive secular growth names.

Employment Situation for June 2016

Mutual funds on Monday.  Today’s post is about the blowout jobs number reported this morning.

At the usual time, 8:30 am edt, the Bureau of Labor Statistics of the Labor Department released its monthly Employment Situation report today.  In it, last month’s paltry +38,000 new jobs figure was revised down to +11,000.  But April’s number was revised up by an almost offsetting amount.  More importantly, June’s new hires were reported at a huge +287,000 new jobs.

The June report goes a long way toward convincing economists that the very poor jobs showing for May is a statistical quirk, not a signal of a major slowdown in the US economy.  …the Federal Reserve, too, which had cited the May figure  + possible fallout from Brexit as reasons to refrain from raising the Fed Funds interest rate as planned last month.

 

Pre-market reaction to the news was at first subdued, with S&P 500 futures trading just above breakeven immediately after the announcement.  But while I’ve been writing this, futures have improved to a gain of about 3/4 of a percent.

 

Wage gains, another aspect of the ES that investors have been looking hard at–for signs of incipient inflation, and therefore the need to hike interest rates more quickly to stave off excessive price level gains–were very small.  Over the past year, wages have risen at a 2.6% rate. That’s higher than the current inflation level, but not by much.

All in all, a comforting report.