Category Archives: Employment Situation report

the February 2012 Employment Situation Report: good news again

March 12, 2012 By in economics, employment, Employment Situation report, Portfolio management, Recent Market Action, Strategy Tags: , , , , , , Leave a comment

the announcement

The Bureau of Labor Statistics, an arm of the Labor Department in Washington, released its monthly Employment Situation report for February last Friday before the start of trading on Wall Street.  The numbers continue to be encouraging.

February results

According to the BLS, the US economy added 227,000 net new jobs last month.  That was comprised of a gain of +233,000 private sector positions, depressed slightly by -6,000 net layoffs from state and local governments.

revisions were up, too

The BLS numbers are complied from reports submitted to it by major US companies and by big state and local government bodies.  For reasons I’ve never bothered to find out, the figures don’t come in all at once–or on time.  Instead, they trickle in, bit by bit, over a three-month period.  So the BLS publishes an initial estimate, followed by revisions in the two subsequent months.

The important thing about revision is that when the economy is picking up steam, revisions tend to be up, as well.  When the economy is sagging, revisions tend to be down.  In other words, the revisions act as confirmation of the primary trend.

Since the nadir for the ES last summer–no new jobs shown in the August report (later revised up significantly)–revisions have been positive.

For February, the revisions are as follows:

—January was initially reported as having added 243,000 jobs, +257,000 in the private sector and -14,000 in state and local governments.  That’s been revised up by an extra 41,000, to +284,000 jobs (+285,000 private sector additions, offset by -1,000 positions eliminated by state and local governments).

—December 2011 was first reported as a gain of 200,000 positions, +212,000 new jobs in the private sector and -12,000 in state and local government.  The January ES report upped that  by 3,000 jobs (+220,000 private sector, a loss of -17,000 in state and local governments).  The final tally for December, released this month, has raised the jobs additions by another 20,000 (+234,000 in the private sector and -11,000 in state and local governments).

This month’s revisions, then, upped the overall tally by 41,000 jobs.

stock market implications

–February was the third month in a row where job increases were significantly above the 150,000/month level.  +150,000 is important.  That’s the average number of new workers finishing school and entering the workforce each month.  So the first 150,000 hires just keeps the number of unemployed people from rising.  Everything above that represents people who lost their jobs during the recession getting back to work.

–The longer this healing continues, the less pressure the Fed will feel to begin any new monetary easing measures.  Also, the sooner the day will come when the Fed begins to raise the current extraordinarily low interest rates back toward a more normal level.

–the data seem to me to reinforce the analysis of strategists like Jim Paulsen of Wells Fargo that the current economic recovery is not unusually weak.  Rather, its par for the course for the US in the post-1980s era.

–increasing employment also seems to me to underline the idea that the greatest gains among domestically-oriented stocks this year will be with companies that cater to a wider audience than just the wealthiest quarter of the population.  The latter have been the big winners from the start of the market upturn in March 2009 until last summer.

–I’m very willing to believe that the EU will remain the caboose on the world economic train for come time to come.  But if we take recent signs that many emerging economies are about to ease monetary policy, and add that to the start of more quantitative easing in Japan and employment strength in the US, the overall train may be moving faster than the consensus expects.  So, while a relative laggard, the EU may not be so bad as expected in absolute terms.  If so, picking through the rubble of EU stocks to find a few secular growth names may not be as risky as investors now think.  (I wouldn’t go crazy, but one or two stocks–bought either locally or in ADR/GDR form–might be good additions to your portfolio.)

the January 2012 Employment Situation report: job growth accelerates

February 6, 2012 By in Constructing a Portfolio, Current Market Thoughts, economics, employment, Employment Situation report, Recent Market Action, Strategy Tags: , , , , , , , , , Leave a comment

Go Giants!!!  Super Bowl champs again!!

the report

Last Friday before the opening of stock trading on Wall Street, the Bureau of Labor Statistics of the Labor Department released its monthly Employment Situation report for January.  Expectations weren’t particularly high.  Commentators reasoned that, despite the fact the data are seasonally adjusted, the release of temporary retail workers hired for the holiday season would depress results.

Instead, the ES report was very strong.

the details

The private sector added 257,000 jobs in January.  As has been the case for some time, state and local governments laid off workers–14,000 last month.  So the net gain was 243,000 positions.  That’s well in excess of the 150,000 or so jobs monthly the economy needs to create to absorb new entrants to the labor force.  It’s the best the economy has done in a long while.

revisions to recent data

Another plus–revisions to November and December data were also positive.

The BLS initially reported net December job gains of 200,000, comprised of 212,000 private sector additions less 12,000 state and local government layoffs.  In the first of two revisions, the BLS upped the net figure by 3,000 positions, adding 8,000 more private sector jobs but tallying an extra 5,000 government job losses.

The November data were initially reported as a net gain of 120,000 jobs–140,000 added in the private sector, 20,000 lost in government.  The December revision lowered the net figure to 120,000 additions–subtracting 20,000 from the private sector total and leaving the government figure unchanged.  The second (and final) revision of November data raises the overall job gains to 157,000–178,000 positions added in the private sector, 21,000 lost in government.

Together, that’s 60,000 extra jobs.

implications

the economy

The ES report is the latest in a series of economic data suggesting that the recovery of the domestic economy is speeding up and broadening.  For the last three months, enough new jobs have been generated to not only absorb new workers but also to start to decrease the number of those left unemployed by the Great Recession.  That’s welcome news.

stocks

From a stock market perspective, the report seems to me to have implications for strategy.  For the past few years, the formula for success has been to concentrate on companies that cater to the affluent, who have been relatively unaffected by the downturn (yes, it may not have felt like “unaffected,” but it’s true).  The idea that recovery is broadening, however, suggests that a stock portfolio should broaden itself out as well, to include companies whose customers are average Americans.  It’s also another reason–as if you needed one–to tilt exposure away from Europe and toward the US.

A really aggressive investor might extend this notion further, to include beneficiaries of an acceleration in overall global growth–capital equipment, industrial raw materials or energy, for instance.  This may turn out to be the right move, but I’m not ready to make the leap yet.  I think it’s too risky.  I’d prefer to stay with consumer discretionary and IT names.

It’s probably also high time to look carefully at anything that’s been in a portfolio for the past couple of years, asking whether a “safe haven” stock still has the low PE and high expected relative earnings growth to justify being a big position–or even to remain in the portfolio at all.

Shaping a portfolio for 2012 (IV): the US

January 8, 2012 By in Constructing a Portfolio, Current Market Thoughts, employment, Employment Situation report, Recent Market Action, Shaping a portfolio for 2012, Strategy Tags: , , , , , , , , , , Leave a comment

US:  stocks vs. economy

It’s increasingly important in looking at the current US stock market, as it typically has been with almost every other national bourse, to distinguish between the health of the domestic economy and the prospects for the stocks listed there.

How so?

According to the best information from Standard & Poors (not every member of the S&P 500 chooses to break out revenues geographically), only 50% of the revenue generated by the 500 come from the US.  About 25% are sourced from Europe and the rest from emerging markets.

In today’s US, as has been the case for the last generation elsewhere, one of the first questions an investor should ask is whether economic growth inside the country will be better or worse than growth abroad.

So let’s look at the US economy.

the economy

the Great Recession

The domestic housing bubble began to collapse of its own weight in mid-2007.  The economy reached its nadir in mid-2009 and has been recovering since.

recovery

Three bumps in the road:

–the boost from spending deferred by companies and individuals during the down turn was exhausted in mid-2010 and the economy slowed somewhat.

–the Fukushima nuclear disaster disrupted industrial supply chains in March 2011.  That’s basically over.

–worries about a financial implosion of the EU that could send negative ripples globally caused companies worldwide to shrink inventories, starting in the summer.  That downward adjustment appears to have just ended.

Looking into 2012,

the economic situation in the US seems comparatively good:

–the housing market may finally be bottoming, in all but the areas worst affected by speculation, after almost five years of decline

–much of the excessive debt taken on by consumers during the bubble has been worked off during three years of restrained consumption

–employment is improving at a slow, but gradually increasing, rate

–real growth in the US will likely be around +3% for this year, which would make the country the best performer among the major developed economies.

Yes, the US faces longer-term problems:  substantial government debt, continuing government budget deficits, increasing competition from China and other emerging countries, the decades-long failure of either major political party to develop a policy agenda relevant for contemporary America.  There’s also the near-term question of fallout from potential economic/financial problems in Europe.

Still, relative to both its own experience over the past several years and prospects for the reset of the developed world. the US is looking pretty good.

the stock market

From a simple top-down perspective, I think market strategy is clear:

–there’s a clear case for overweighting the US vs. Europe or Japan.

One might also argue for overweighting the US vs the emerging world as well, since domestic earnings will likely be expanding at an accelerating rate while emerging markets’ profits, although growing faster, will be doing so at a decelerating rate–but I’m less confident that this is the right thing to do.

–one should emphasize domestic-oriented firms vs. international companies, especially those with exposure to the Eurozone

–manufacturers of industrial equipment and consumer durables should do relatively well

–expect consumers to continue the process, already begun, of trading back up to the higher-end brands they abandoned during the recession

–given that growth stock beneficiaries of structural change have been the biggest winners until the past few months, it’s possible that traditional business cycle-sensitive value stocks will have their day in the sun.

Nothing’s ever that easy, though. 

The internet, as wielder of the sword of creative destruction, continues to wreak havoc among bricks-and-mortar retailers and the strip malls they inhabit.

The question of whether the current high unemployment rate is cyclical or structural (I’m in the structural camp) is also relevant.  If you think high unemployment is cyclical–and that continuing economic growth mostly means the long-term unemployed gradually get their jobs back–buy WMT or DG.  If you think it’s structural–and that growth mostly means the currently employed get raises–buy TIF or JWN.  (Note: for the past six months, DG has been the clear winner, with WMT in second place.  Is this a counter-trend rally or the start of a new trend?  If the former, is it already mostly played out?)

Luckily, there’s no need for any investor to have a strong opinion about everything–or to act on everything he has an opinion about.  Instead, the secret to success is to understand what the issues are, but to locate a small number of things that you have the highest degree of confidence in to invest in.

the November 2011 Empoyment Situation report: upward revisions show a healing economy

December 4, 2011 By in economics, employment, Employment Situation report, Portfolio management, Strategy Tags: , , , , , , , , , Leave a comment

the report

Before the opening of equity trading in New York on Friday December 2nd, the Bureau of Labor Statistics released its monthly Employment Situation report for November.  The results:

–the establishment survey (of large companies and government agencies) showed that the economy added 120,000 jobs last month;

–the household survey (of 60,000 workers) indicated that the unemployment rate had dropped from 9% of the workforce to 8.6% .

As has been the case for over a year, the job additions are the result of stronger private sector performance— +140,000 jobs –and government sector weakness— -20,000 jobs — as states and municipalities continue to bring their spending back in line with revenues after years of excess.

the revisions

September figures underwent their second, and final, revision.  The initial report two months ago showed a gain of +103,000 jobs (+137,000 in the private sector, -34,000 in the public).  The October ES report revised that up to +158,000 (+191,000 private sector jobs, -33,000 public sector).  The current report revises the figures up again, to +210,000 (+220,000 in the private sector, -10,000 in the public).

October numbers were initially reported as +80,000 jobs (+104,000 private, -24,000 public).  The November ES report also revises October up, to +100,000 jobs (+117,000 private, -17,000 public).

Adding the initial November job gains to the most recent revisions for the prior two months indicates that the US economy has 200,000 more citizens working than we thought a month ago.

Over the past three months the economy has added about a half-million jobs .

economists’ reaction

Comments in the media by professional economists were, to my mind, surprisingly downbeat.

I can see three reasons for this:

–the quirky ADP employment report, which came out on Wednesday, showed the economy added +206,000 private sector jobs last month.  By contrast, the official figure of +140,000 looks a bit tepid.

–the 8.6% unemployment rate isn’t as positive as it seems.  Recent graduates looking for their first jobs aren’t counted as unemployed, nor are “discouraged” workers who have lost their jobs but quit looking for new ones.  Maybe this isn’t ideal. but it’s the way the unemployment rate calculation is designed.  The current drop in the unemployment rate appears mostly due to changes in non-counted groups.

–the monthly job gains need to be 200,000+ to begin to bring the unemployment rate down.

I think economists’ bearishness is overdone.   Today’s US economy is in a lot better shape than it was a year ago.  The private sector numbers are improving, and are at the point where enough new jobs are being created as here are new graduates coming into the workforce.  For some time, companies have been reporting shortages of workers in certain areas. And the most recent BLS report on job openings indicates there are still about three million private sector jobs as yet unfilled.

It could be a lot worse.

stock market reaction

It may sound a little too simple, but I think the stock market is coming to the conclusion that after six months all the money that’s going to be made by being bearish has already been made.

Yes, the future of the Eurozone is still a big issue.  But recent developments suggest that the outlines of a resolution are being sketched out now–and that the end result may not be nearly as bad as the consensus has been expecting.

So, I think the stock market is starting to look for reasons to be bullish.  The November ES report isn’t by itself a sufficient reason to be bullish, but it’s another confirming indicator.  My guess is that despite the negative tone I detect in economists’ and market commentators’ recent remarks Wall Street will continue to move higher.

 

 

 

 

the October 2011 Employment Situation report: not great, but still good

November 6, 2011 By in economics, employment, Employment Situation report, Portfolio management, Recent Market Action, Strategy Tags: , , , , , , , , , , Leave a comment

the report

The Bureau of Labor Statistics released its Employment Situation report for October 2011 before the opening of trading in New York on Friday November 4th.  The report showed continuation of a pattern that has become familiar over the past year.

The economy added 80,000 net new jobs last month.  The private sector added 104,00 new positions; state and local governments laid off 24,000 workers.

The unemployment rate dipped from 9.1% to 9.0%.

That’s good news.

But the economy needs to add well over 100,000 jobs just to absorb new entrants into the workforce.  So the decline in the unemployment rate is probably due to other factors than new job creation.  The figure may have been due to a statistical quirk, or to long-term unemployed persons giving up the search for work (and therefore no longer counted as being in the workforce).  Or it may have been due to the positive revisions made to the September employment figures (see below).

Nevertheless, the evidence indicates the economy is slowly healing itself.

The reporting pattern–private sector gains, public sector job losses– also makes it clear, I think, that any short-term stimulus funds from Washington that goes directly to state and local governments will temporarily stop their layoffs and let the full strength of the private sector shine through.  So the employment figures would likely improve immediately.

The economic issue is whether or not it’s good to do so.  Will it simply prolong a necessary adjustment by previously profligate local politicians, doing the country no long-term good?  The burning question in Washington is, of course, somewhat different.  The political issue  is which party the recipients of such help are likely to vote for in the 2012 election.

the revisions

As you probably know, the Establishment Survey for a given month, from which these job numbers are compiled, is collected over a three-month period from larger corporations and government bodies.  Each month’s initial report undergoes revisions over the two subsequent months, as more complete data are sent in.  Rising revisions tend to be the rule in a growing economy.  So they’re a good sign.

Revisions for August and September are upward.  I think they are the most significant part of this months’ report.

The August figures, which caused a political firestorm and a slump in the stock market, were initially reported as 0 new jobs.  That figure broke out into +17,000 jobs added in the private sector, offset by a loss of -17,000 government workers.  The September report upped those numbers to +57,000, with +42,000 private sector jobs added and (surprisingly) +15,000 in government.  The (final) revision in October boosted the figures further.   The final result is a gain of +72,000 private sector workers and +32,000 in government, for a total of +104,000.  That’s not far from the recent monthly average for job increases, suggesting the original poor figures were not real and simply a statistical accident.

The initial revision for September upped those results significantly as well.  Originally, they were reported as +103,000 new jobs, broken out into +137,00 new private sector positions and a loss of -34,000 government jobs.  They now stand at +158,000.  A very strong 191,000 jobs were created in the private sector, offset by a loss of -33,000 state and municipal government workers.

What makes the September figures stand out is that regular monthly gains of 200,000 or so new jobs would be enough to start the unemployment rate trending downward.

investment implications

The October report shows, I think, that world stock markets were too quick to read the initial poor August figures as indicative of a new, weaker, economic trend.  Subsequent data, not only from the BLS, but also from other macro indicators and from the earnings reports of publicly traded companies, show that the US economy is doing the opposite–slowly gaining strength.

Very recent stock market is showing support for the idea that recovery’s pace is accelerating markedly, through the strong performance of the Materials, Energy and Capital Goods sectors.  I’m reading this as a counter-trend adjustment of relative valuation–meaning only that the spread between continuing market leaders and other stocks had gotten to wide.

The September job additions, however, and possibility that they will be revised up in coming months, suggest that the current move of these three sectors may have a sounder footing than I’m willing to admit.  I’m not changing my stance yet.  I think that I have to pay very close attention to next month’s job report, however.