Category Archives: Employment Situation report

the Employment Situation report for August 2012

September 10, 2012 By in Constructing a Portfolio, economics, employment, Employment Situation report, Portfolio management, Strategy Tags: , , , , , , , , , , , Leave a comment

the report

On Friday September 7th at 8:30 EDT, the Bureau of Labor Statistics, part of the Labor Department, released its monthly Employment Situation report for August 2012.  The headline figure is that the US economy gained 96,000 jobs last month.

That’s disappointing in several respects:

–it’s below the economists’ consensus of +120,000-140,000 new positions

–it’s considerably less than the +201,000 job additions reported by ADT earlier in the week

–it’s under the 150,000 or so new jobs needed each month to absorb new entrants into the labor force–meaning it’s not enough to eat into the number of long-term unemployed

–it suggests that the more favorable report for July (+163,000 jobs) is as much an outlier as the much weaker numbers from May and June.

the details

The 96,000 jobs consist of 103,000 new hires in the private sector, offset by -7,000 layoffs by state and local governments.  The service sector continues to be a strong generator of new jobs.  Construction seems to be bottoming.   But for the first time in a while, the manufacturing sector is beginning to shed jobs.

the revisions

As regular PSI readers know, the ES report is revised in each of the two months following its initial release.

The initial figures for July were +163,000 jobs (+172,000 in the private sector, -9,000 state and local government layoffs).  That has been revised down in the August report to +141,000 (+162,000, -21,000).

The figures initially reported for June were +80,000 (+84,000, -4,000).  They were revised down in the July report to +64,000 (+73,000, -9,000).  In the August report, the numbers were revised down again to +45,000 (+63,000, -18,000).

my take

the surprising thing about this report is that the S&P went up on the news.

After all, it seems to dash hopes that the US economy is going to accelerate from the current lackluster pace.  To the contrary, it suggests that what we are seeing now is as good as things are going to get for employment–and chronic high unemployment is going to be a fact of life.

At the same time, the US stock market is holding above the 1420 line that has represented a very substantial barrier to advance.

What could this mean?

On the most elementary level, investors appear to have returned from the Hamptons with their buying shoes on.

I don’t think anyone can possibly believe that additional Fed action will make any substantial positive difference for the US economy.  Nor do I think that current economic conditions domestically or in the EU or China or Latin America are a cause for joy.

It could be that investors have suddenly awakened to the fact that bonds are very expensive and stocks very cheap.  But that’s been the situation for a very long while.

What I think is going on is that sentiment is changing.  Investors appear to be starting to believe that the worst is over in world economies.  Two implications of this belief:  stocks aren’t going to get much cheaper, and it’s okay to buy at today’s prices anticipated earnings improvement in 2013-14.

The big imponderable is how long the current bullish mood will last.

my bottom line:

We should enjoy the ride–which might represent a crucial, positive, turning point for stocks–but be very wary for signs that the curent mood change is just a passing fancy.

 

 

the Employment Situation report for July 2012

August 6, 2012 By in employment, Employment Situation report, Portfolio management, Recent Market Action, Strategy Tags: , , , , , , , , Leave a comment

the report

On Friday August 3rd at 8:30am EDT, the Bureau of Labor Statistics of the Labor Department in Washington released its Employment Situation report for July 2012.  According to the BLS, the US economy added a net +163,000 new jobs during the month–the best showing since February.  The private sector created 172,000 positions;  state and local governments laid off -9,000 workers.

the revisions

As regular readers are well aware, the employment figures come from a BLS survey of large corporations and state/local government bodies.  Respondents have three months to get their data in.  As a result of differences in reporting speeds, each monthly figure compiled by the BLS  is revised twice, once each in the two months following the initial report, before it is considered final.

The May ES figures were initially reported as +69,000 jobs, consisting of +82,000 in the private sector and -13,000 layoffs by state and local governments.  These numbers were revised up in June to +77,000 (+105,000 private, -28,000 government).  The final tally, reported on Friday, is another upward revision, to +87,000 jobs (+116,000 private, -29,000 government).

The June figures were initially reported as +80,000 (+84,000 in the private sector, -4,000 government).  In the July ES, they’re revised down to +64,000 (+73,000 private, -9,000 government).  

Between the two months, revisions clip -6,000 positions from the total in July, all the decline coming from to state and local government layoffs.  (Despite the large May government layoff figure, the rate of shrinkage of state and local government employment is slowing.  Two reasons:  state/local revenues, rising rapidly as the economy recovers, are now approaching their previous 2007 peak; and, balanced budget rules have already been forcing trimming for a number of years.)

what makes this ES important

background

Employment in the domestic economy hit its low point about three years ago.  At that time there were about 9 million fewer people working than at the (overheated) peak of 2007, and maybe 7.5 million people fewer than normal.  Since then, due to a combination of natural healing and the Fed dropping interest rates to an emergency low of zero, the economy has added back over 4 million jobs.

It’s tempting to do simple subtraction and say that there are still at least 3.5 million out of work due to the recession.  It’s not that simple, however.  Students are constantly finishing school and looking for their first post-education jobs.  Older workers retire–though at a below normal rate at present–freeing up positions for new workers to take.

How big is this movement in net terms?  Economists estimate that the US needs to create an average of 125,000-150,000 new jobs each month just to absorb net new entrants into the workforce.

Therefore, the big army of unemployed only starts to get whittled down when the economy generates more than 125,000-150,000 jobs a month.

the recent past

Over last winter, job creation suddenly accelerated to around 250,000 new positions a month.  Wall Street was elated!  The economy appeared to have not only absorbed all the new school-leavers but also reduced the ranks of the long-term unemployed by 10%.  Maybe a 1970s-, 1980s-style (read: faster) recovery was finally underway.  And this during a period when bad weather tends to slow hiring.

Then came the March figures, which were slightly below 150,000 job adds.    …and the April figures   …and the May figures   …and the June figures–all sub-100,000 job creation months.  Wall Street was deflated!

Initially, investors read the apparent slowdown as mild winter weather pulling forward into February construction work that usually comes only in April.  But as the sub-100,000 months began to pile up–and, at the same time the EU economy was turning out to be worse than expected and slowdown in China was deepening–investors began to fear that simple seasonality wasn’t the culprit.  Wall Street began to think that the job figures were signaling the US was beginning to be dragged back into recession by economic woes elsewhere.

At least for the moment–and for good, I think–the July ES has restored seasonality as the most likely reason for the poor job numbers posted during the spring.  We’re back to the idea that the domestic economy is growing just enough to absorb new entrants–but not to make any appreciable dent in the large number of chronically employed.

stock market implications

1.  Having several million “extra” unemployed is a calamity for the unemployed themselves.  It’s also a key long-term social and political problem.  It isn’t necessarily as big an issue for publicly traded companies, however.

The long-term unemployed represent maybe 3% of the workforce.  When working, they represented far less than that percentage of total consumption spending–1% would be a generous estimate.  Corporate profits would be dented severely by a global recession.  But, sad to say, ex materials companies, failure of Washington to ease chronic unemployment won’t make very much difference to S&P 500 earnings.

2.  In the manic, black-or-white, all-or-nothing view of short-term traders, Wall Street is again a safe place to be long.  This doesn’t necessarily mean that stocks are going to go up a lot from here.  But it does, in my view, lower the odds of a protracted slide in the S&P 500.

3.  If, as I think they will, the July ES figures do prove indicative of what August and beyond will bring, it may well also be that the world will see the upcoming US presidential election as not as crucial as it does now.  The belief that neither major party candidate is competent would be less threatening if the economy is, although admittedly slowly, healing itself.  Wall Street would then probably default to its traditional stance that, after all, gridlock is the best one can hope for from politicians.

Again, this doesn’t mean that stocks will go up–or that Washington will do anything for the chronically unemployed.  It does mean, however, that some growth is possible without helpful/needed fiscal policy changes the government refuses to make.  The magnitude of another worry is reduced.

the May 2012 Employment Situation report

June 4, 2012 By in Current Market Thoughts, economics, employment, Employment Situation report, Recent Market Action, Strategy Tags: , , , , , , , 1 Comment

the report

The Bureau of Labor Statistics, a part of the Labor Department, released its monthly Employment Situation report last Friday before the opening of equity trading in New York.  The stock market was in an ugly mood before the data release–and the tone became even less pleasant after traders saw the tepid numbers being reported.

According to the BLS, the US economy added 69,000 net new jobs during May.  As has been the case over the past couple of years, that figure consists in gains from private sector employment (+82,000 jobs) and losses from state and municipal governments trying to balance their budgets (-13,000).

revisions didn’t help

The Employment Situation is a survey of a large number of big employers, both private and public.  Data don’t come in all at once, so the Labor Department revises the initial figure in each of the subsequent two months.

In May, the April figure, originally set at +115,000 new positions, was revised down to +77,000.  The March figure, originally set at +120,000 and revised up in April to +154,000, was trimmed back to +143,000.

where did 1Q12 job strength go?

The ES reports for 12/11 through 2/12 showed monthly job gains of +223,000, +275,000 and +259,000.  These figures sent bullish sentiment soaring on Wall Street.  For one thing, it was a marked acceleration from the prior monthly rate of +100,000 or so new jobs.  Also, since the economy needs 100,000+ new positions a month just to absorb new entrants to the workforce, it appeared GDP growth was finally becoming strong enough to help rescue the millions left unemployed by the Great Recession.

At the time, bears said that the apparent acceleration was simply due to the fact that an unusually warm winter was shifting springtime hiring forward by a few months and that it would soon fade away.  I didn’t think so then, but it’s looking more and more like they were right.

reviewing the overall employment numbers

Employment in the US peaked at 138.0 million in January 2008.  By the low point in February 2010, that had fallen to 129.2 million, a loss of 8.8 million jobs (I’m using seasonally adjusted numbers;  the raw data show a virtually identical pattern, but the timing is slightly different).

Figure that the high schools and colleges churned out another 2 million potential workers during that period and you get a better sense of the depth of the employment problem.

The latest ES report says 133.0 million people are employed today, 3.8 million more than at the low.  Except during the summer of 2010, when month-to-month comparisons took a mild dip, the employment rolls have shown steady gains each month for the past two years.  Remember, though, that over those two years another 2 million or so new graduates have started to look for work.

to summarize

If we look at employment, we’re almost half the way back to the all-time peak of 2008.  This has positive implications for GDP growth.

From an unemployment perspective, however, we haven’t made much progress.

stock market implications

Taking a very simple-minded point of view (which is the best I can do–but which is sometimes surprisingly effective), Wall Street ran up during the first quarter on the idea that  economic recovery was accelerating.  It dragged the rest of the world up along with it, in the hope that US vigor would mitigate some of the economic slowdown being experienced by other countries.

Of the past two months, global equity markets have run back down to where they were before, as it become more likely that the hefty early year job gains were transitory.  From a social and political angle, we’re back thinking that there isn’t going to be a magic solution to US unemployment, which remains a severe problem.

Nevertheless, there are about two million more people in the US today working than there were a year ago.  Many of the 133.7 million total jobholders have paid back much of their excessive debt.  Increasing retail sales are saying they’re much more confident now that their jobs are safe.

It’s not only the level of the US stock market that has changed, but also the evolving economic storyline.

At some point, we’ll have finished discounting the fact that the weather shifted job gains from spring into winter and the stock market will stabilize. The baby-and-bathwater panic I read in recent trading says we’re much closer to the end of this process than the beginning.

Just as important, investors will continue to rotate their portfolios into companies that appeal to a broad range of consumers, not just the wealthy.  Since there may not be enough growth to make the profits of all firms go up, the earnings growth story will likely be one where strong firms take market share from the weak.  iPhone and Android take market share from Blackberry; Apple, Samsung, Acer and Asus take share from Dell and HP…

the April 2012 Employment Situation report

May 7, 2012 By in economics, employment, Employment Situation report, Portfolio management, Recent Market Action, Strategy Tags: , , , , , , , Leave a comment

the report–+115,000 net new jobs

Before the opening of stock trading on Wall Street last Friday, the Bureau of Labor Statistics of the Labor Department released its monthly Employment Situation report for April 2012.  According to the ES, the US economy added 115,000 new jobs last month.  That was made up of +130,000 net new positions in the private sector, offset by -15,000 layoffs by state and local governments.

While a reasonable performance, the figure was substantially weaker than both the median estimate of domestic economists (which was for a gain of around 160,000 new jobs) and the stellar performance of the winter months, whose gains comfortably exceeded 200,000 each.

revisions were positive

Job additions for February were initially reported as +227,000 (+233,000 for the private sector, -6,000 for the public).  That figure was revised up in the March report to +240,000 (+233,000 private, +7,000 public).  The final numbers, reported in the April ES, were revised up again–to +259,000 (+254,000 private, +5,000 public).

Job gains for March were initially reported last month as +120,000 (+121,000 private, -1,000 public).  The April revision boosted that figure to +154,000 (+166,000 private, -12,000 public).

Taking February and March together, April revisions boosted the number of net job additions during those months by 53,000 (+66,000 in the private sector, -13,000 in the public).

Wall Street was disappointed

Investors had been hoping that the April ES would reestablish the more favorable job gain trend of last winter, or at least show that the low reading in March was a fluke.  Arguably, the +34,000 upward revision of the initial March figures did that.  But all eyes–or at least those of short-term traders–appear to have been focused entirely on the current month figures instead.

As a result, the S&P 500 declined by 1.6% for the day.

why the slowdown in job growth?

Three explanations appear to be on offer:

1.  The US economy is doing the same thing it did in 2010 and 2011, lurching into a “seasonal” deceleration in economic growth.

2.  The unusually warm winter weather in normally cold regions of the US allowed an early start to what’s normally springtime work. Construction or home renovation, for instance.  This shifted job creation ordinarily seen in March or April into January and February.  If so, what we’re seeing now is temporary payback.  The real job growth trend is +160,000/+180,000 new positions a month.

3.  A third possibility comes from a Goldman report I’ve only read about in a Gavyn Davies blog for the FT. The idea comes from Okun’s “Law,” the suggestion that changes in the workforce move in line with the rise and fall of GDP.  In the Great Recession, argues Zach Pandl of Goldman argues, layoffs were much heavier than the fall in GDP warranted.  Similarly, during the recovery, job gains have been a lot greater than a tepid economy would justify.  However, we’ve recently reached the point where all the “extra” workers shed by companies during the downturn have been rehired.  Therefore, from this point on job gains will again move in lockstep with rises in GDP.  In other words, they won’t be much to write home about.

does it matter for investors?

For what it’s worth, I think there’s a small effect from warm winter weather in the ES data but the rest of the apparent weakness in March and April is a fluke–probably having to do with the seasonal adjustments Labor Department economists make to the raw data.

That’s not the important investment issue, though.  We all have to ask ourselves how much difference having the correct explanation for the April jobs figures makes for our equity investment strategy.  After all, we’re back to record-high levels of real GDP in the US even with a high level of unemployment.  The long-term unemployed are a political and social problem.  They aren’t necessarily a stock market one.

I can think of two ways in which interpretation of the ES results makes a difference:

–in the (unlikely, to me) case that the US economy is beginning to stall, or even to shrink a bit, a defensive stance is called for

–if there’s going to be negligible job growth in the US from this point on, then the strategy of 2009-2010 of emphasizing emerging markets and domestic firms that cater to the global affluent will likely be the right way to go.

Otherwise, the pattern of market action over the past eight months or so is going to continue–slow but steady outperformance by IT and by consumer discretionary firms that appeal to the broadest spectrum of domestic customers.

The March 2012 Employment Situation report: hiring slowdown?

April 9, 2012 By in economics, employment, Employment Situation report, Recent Market Action, Strategy Tags: , , , , , , Leave a comment

the report

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.

my thoughts

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.