Category Archives: Employment Situation report

thoughts on the May jobs report: (I)

June 7, 2011 By in Current Market Thoughts, economics, emerging markets, employment, Employment Situation report, Portfolio management, Recent Market Action, Strategy Tags: , , , , , , , , , , 1 Comment

Yesterday,  I wrote about the bare bones of the May Employment Situation report issued by the Bureau of Labor Statistics.  Job growth for the month dropped from the recent rate of around 200,000 job additions to 54,000.

More data:

Commenting on the May Employment Situation, the BLS says there’s no obvious statistical anomaly that might lead one to think the low job additions number will be revised away in coming months’ reports.  Also, if the slowdown were due to economic disruptions in Japan caused by the Fukushima nuclear disaster in March, we should be seeing a decrease in hours worked, as parts-short factories slow production.  We don’t.

Outplacement agency Challenger reported a couple of weeks ago that job security for those currently employed is rising.  In addition, company plans for layoffs are the lowest they’ve been in over a decade.  The anticipated layoff rate is 80% of what it was a year ago, and only about a quarter of what companies were figuring to do  during early 2009 (the low point for the economy).

I’ve also read a report recently (no citation–I’m writing this from a B&B in Colorado and will post a link when I get back home) indicating that companies were increasingly willing to pay to relocate potential hires because they can’t get the skills they need in the local labor market.

Recent earnings reports seem to indicate that US consumers are increasingly trading up, and are spending more (sometimes, a lot more) on discretionary items.  TIF, for example, just posted very strong results.  The company said it was seeing strength across the country and that each month of the April quarter was stronger than the previous one.  More expensive items are the best sellers.

my thoughts

Looking in rough terms, an unemployment rate of 9% means 91% of the workforce is employed.  An unemployment rate of 5% would be full employment.  So, putting aside questions about the long-term vitality of the US economy, which involves “cosmic” considerations about whether/how our legal and political framework encourages economic growth, the near-term unemployment issue involves about 4% of the workforce.

Given the distribution of incomes and wealth in the US, this 4% represents far less than 1% of potential US consumption.

As far as we can determine (the issue is one of corporate disclosure), half the earnings of the S&P 500 come from outside the US.  We can roughly divide that into 25% from the EU + Japan and 25% from emerging markets.  In other words, whether unemployment in the US is 9% or 7% makes virtually no difference to S&P 500 profits over the next year or two (or three or four).

There are investment issues, however.

They have to do with the multiple placed on earnings whose future course is somewhat less certain, and about sector/industry weightings and individual stock selection.

I think there may also be, for lack of a better word, a “transition” issue, as conventional wisdom about the preeminent position of the US economy in the world, and the relationship between the course of the US economy and the S&P 500, are questioned.

More tomorrow.

May jobs report: a sharp downshift into low

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

the Employment Situation report

Last Friday morning the Bureau of Labor Statistics released its Employment Situation report for May 2011.

The numbers showed a sharp deceleration in job growth during the month, from the 200,000 or so pace of job additions seen in recent months to a disappointing +54,000.  That’s well below the pace of around 100,000 additions needed to absorb new entrants into the workforce–to say nothing of absorbing any of the large army of unemployed created by the recent recession.

job growth patterns haven’t changed

The general pattern of job growth in May remained the same as we’ve become used to over the past year:  a larger gain in the private sector (+83,000), offset by job losses in government (-29,000) as states and municipalities cope with budget deficits.  There’s no joy in the monthly revisions, either:  March job gains were revised down by 27,000, April by 12,000.

stock market reaction

Stock market reaction to the news was mildly negative.  But the “mild” part only reflects the fact that a jobs related market selloff began earlier in the week, when the (much more erratic) ADP job survey also signaled a significant cooling off in hiring in the domestic economy.

It’s possible that the May figures are a statistical anomaly and that we’ll be back at 200,000 job gains next month.  I wouldn’t bank on that, however.  There are enough other economic indicators indicating slowdown to make that too optimistic an assumption to safely make.

investment implications

There are two real questions for investors:

–how to interpret the figures.  …are they a consequence of a supply chain slowdown induced by the earthquake/tsunamis in Japan in March? … do they stem from the subsequent weakness in the Japanese economy, which is still one of the largest in the world?  …or is the US just settling back down to a “normal” growth level after a surge in pent-up demand after the recession?

–how to assess their investment significance.  …that is, how is the stock market likely to react if the US unemployment rate remains stuck around the 8%-9% level?  …is there a way to structure an equity portfolio so that the pace of job growth isn’t crucial to investment success?

We’re still in the midst of wedding festivities.  More tomorrow.

the April 2011 Employment Situation report

May 8, 2011 By in Current Market Thoughts, economics, Employment Situation report, Strategy Tags: , , , , , Leave a comment

the report

On Friday May 6th, the Bureau of Labor Statistics released its April 2011 Employment Situation report.  According to the BLS, the economy added 244,000 jobs last month, bettering economists’ estimates of an increase of 185,000 positions.  Private industry gained 268,000 jobs; as has been the case recently while states and municipalities seek to balance their budgets, governments shed 24,000.

Strength came from a variety of sectors–manufacturing, retail, healthcare and leisure and hospitality.

revisions

The official unemployment numbers come from the larger of two surveys the BLS conducts monthly.  Called “Establishment” data, it is compiled from reports from organizations representing about a third of the employees in the US.  Not all the information comes in on time, so the Establishment data are revised twice before being declared final, once in each of the two months following the initial release.  These revisions are themselves a good indicator of the strength of the economy, since they are typically positive in a healthy labor market and negative in a bad one.

The February job additions were initially reported as a gain of 192,000 positions.  That number was revised up to 194,000 in March and 235,000 in April.  The March job gains were initially reported as +216,000.  In the April report, the figure was upped by 5,000 to 221,000.  We’ve seen the same positive pattern for a while.  So far, so good.

the unemployment rate

“discouraged” workers

The April unemployment rate was determined to be 9% of the workforce, up from 8.8% in March.  One might think that this is evidence of a well-known quirk in unemployment statistics that makes itself evident when the job situation is improving.  It’s what the statistics do with “discouraged” workers, that is, unemployed people who are so downcast from repeated failure to find a job that they see no point in continuing to seek work and simply stop looking.

People in this situation are not considered to be unemployed.  They’re classified as not being in the workforce.  As a result, when the discouraged drop out of the ranks of job seekers, they decrease the workforce and thereby make the unemployment rate lower.  In other words, in bad times the unemployment situation is actually worse than the official statistics show. 

Conversely, as the job situation improves, the discouraged take heart and begin looking for work again.  This makes the unemployment rate go up.

Although this is what usually happens, the April figures don’t show discouraged workers reentering the workforce.  Instead, it shows 190,000 fewer workers employed than in March and 205,000 more unemployed in a workforce that’s virtually unchanged in size.

“Household” data and sample size

The unemployment rate isn’t derived from the Establishment data, which are forms companies send in telling about how many people they employ.  The unemployment rate comes from the “Household” data, information gathered from monthly interviews with 60,000 randomly selected households.

This is a much smaller sample size.  In fact, the BLS statisticians calculate that the smallest movement in the month-to-month figures from the Establishment survey that’s statistically meaningful (and not just statistical noise) is 100,000.  For the Household survey, the number is 400,000.  This means that the .2% increase in the unemployment rate may simply be a random variation in the data collected.

investment conclusions

April is the latest in a series of months of strong employment gains for the US economy.  There’s no evidence in the report (compiled around mid-April) of any slowdown in hiring activity due to rising commodity prices.  But even though the data show a significant strengthening of the labor market to well over double the rate needed to absorb new entrants to the workforce, it will still take several years at this higher level of job gains for the economy to reach full employment again.