the March 2013 Employment Situation Report

the report

At 8:30 edt this morning, the Bureau of Labor Statistics of the Labor Department released its monthly Employment Situation Report for March.

Job gains for March came in at +88,000 net new positions, a sharp decline from the +236,000 new jobs reported for February.  The figure was also considerably below the consensus of private economic forecasters, +190,000  …as well as of the more bearish of them, who were suggesting +150,000 was more likely.

The private sector gained +95,000 jobs; government subtracted -7,000, due to a loss of -12,000 postal workers.

Construction and retail were the weakest areas month on month, suggesting that cold weather may have had a hand in how the numbers played out.  Still, the March jobs figure was surprisingly bad.

What makes the situation more curious is

the revisions

Not all the government survey respondents get their figures in on time.  So each monthly ES is revised twice, once in each of the following two months.  In contrast to the March ES numbers, the revisions for January and February are both strongly positive.  

–The February figure rises from +236,000 to +268,000, on the addition of +8,000 private sector jobs and +24,000 in government.

–The January figure goes from +119,000 to +148,000, on the addition of +24,000 new private sector jobs plus fewer layoffs in government.

Together, the revisions boost job growth by +61,000 new jobs.

what’s going on?

No one really knows.

The March figures might not reflect the true job situation, either because of the weather or because of some quirk of the seasonal adjusting the BLS does to the numbers.  It may also be that strong construction and retail hiring earlier in the year “stole” some jobs from March.

Or it could be that something happened to the economy in March that caused employers to rein in hiring.  The most benign explanation I can think in this vein is fear of the sequester.  In one sense, this really shouldn’t be the case, since the sequester is only about 1/7th the size of the fiscal cliff–and employers were hiring at a +200,000 monthly clip as the “cliff” approached.  On the other hand, maybe the sequester is realer than the cliff ever was.  And all the noise coming from both  political parties suggested that Washington might, instead of trying to minimize the economic minus the sequester will cause, try to make the sequester as harmful as possible, just to score bureaucratic/partisan points.

If I had to guess, and I don’t want to, I’d say that the real job gains are around +150,000 and that we’ll see in a month or two that temporary statistical noise is obscuring this.

what’s an equity investor to do?

One bad jobs number doesn’t change the economic recovery story for the US.  In fact, if we take the +88,000 as the unvarnished truth, it reinforces my strategy of staying away for now from the most highly cyclical sectors, like Materials.

For what it’s worth, I have two rules for days like today, which, as I’m writing, is showing some stomach-churning falls in individual stocks:

1.  don’t do something crazy that I’ll regret in two or three months, and

2.  try to upgrade the portfolio.

On down days with wide swings like we’ve been having the past week or so, typically the stocks that have been showing the greatest relative price strength–and which have the best growth prospects– tend to go down the most.  That’s most often solely because they’ve produced the greatest gains.

The only ones that don’t go down are the doggy ones that haven’t gone up–and which will presumably be left behind in the dust again when the market resumes its rise.  A day like this gives all of us a chance to trade in that loser we’ve irrationally been holding onto (please don’t tell me there aren’t any in your portfolio–that just means you aren’t looking hard enough) for a better model at a more favorable price.

February 2011 Employment Situation: a jobs number Wall Street can at least like

the Employment Situation

The Bureau of Labor Statistics released its February 2011 Employment Situation report on Friday.

It’s not a great report but it’s a good one, one that reinforces the consensus view on Wall Street that the overall economy in the US continues to heal.  The initial move of investors in the New York market on the Friday open–just after the BLS announcement–was to sell.  But the downdraft was mild.  And it arguably was more a function of how strong the market has been over the past few days than any negative reaction to the jobs report itself.  Yes, the market closed down.  But, again, I think this had little to do with the job numbers.  More on the market when I update Current Market Tactics tomorrow.

headlines

The headline numbers were:

–the economy added 192,000 jobs in February.  That’s well above the 100,000 positions the US needs to create to absorb new entrants into the workforce, and it’s within shouting distance of the 200,000+ that would indicate a healthy recovery.

–the unemployment rate fell below 9%, to 8.9%.  There are legitimate questions about how comparable this figure is to results in prior recoveries.   But it is at least psychologically important to get rid of the nine to the left of the decimal point.  Also, the year-ago unemployment rate, where comparability issues aren’t so much at issue, was 9.7%.

revisions:  more good news

There’s more positive news in the report than just the headlines:

The December job additions figure has undergone its second monthly revision.  The initial number reported was +103,000 jobs.  The January revision added 18,000.  The February revision chipped in another 31,000, bringing the final December number to +152,000 jobs.  That breaks out into +167,000 jobs in the private sector, -15,000 in government.  Thelatter secots is likely t ocontinue to be weak, as state and local governments try to bring chaotic finances under control.

The January job additions figure, which was initially penciled in at a disappointing +36,000, has been revised up by +27,000.  According to the BLS, the private sector added +68,000 positions, government declined by -5,000 workers.  One more revision will be made, next month.

investment implications

It certainly is comforting to see the January jobs number revised up. And it’s good to see the February figure as high as it is.  At the same time, though, the Employment Situation report is only confirming what consumer spending figures, consumer confidence numbers and private surveys by service providers to employers have been telling us for some time.

I think we’ve passed the point in the economic cycle where this BLS report will be crucial to investors.  I suspect that if in coming months a jobs figure is either surprisingly good or unusually bad, the market will ignore it as readily as it did the sub-par January result.  From now on, I think the market will be pleased at continuing good figures from the Employment Situation, but will react with a yawn.  It will only react in two cases–and badly in both:  if the numbers are very weak for two or three months in a row, or in the (unlikely for a while, in my view) event they’re so strong they suggest the Fed will act to normalize its extremely stimulative interest rate policy. 

January 2011 Employment Situation report: a poor number no one believes

The Employment Situation for January

The Bureau of Labor Statistics (BLS) released its January Employment Situation News report last Friday.  The headline figure, the number of new jobs added in the economy, was a disappointing +36,000.

not a great report

Why disappointing?  Two reasons, one economic and one social/political:

–The January figure follows much better results of +93,000 in November and +121,000 in December.  It would have been more comforting had January showed further progress toward macroeconomists’ hoped-for 200,000+ monthly job additions.

–On average, 100,000 people a month finish school or professional training and enter the workforce each month.  So, although it’s good that the economy created 36,000 new positions last month, the number implies the country also produced another 64,000 would-be workers who can’t find jobs.  This adds to the social pressure caused by the fact that about 14 million other Americans are already in the same situation.

the unemployment rate dropped

…to 9% from 9.4%.  That’s because, based on its monthly phone surveys, the BLS estimates the bad weather that swept over much of the country kept just under a million people from getting out to look for work.  Interestingly, the weather was not bad enough to keep people away from the malls last month.  Contrary to cautious analysts’ projections, retail sales for January were up by a surprisingly good +.7%.

the jobs number may not be as bad as it looks

First of all, there’s the weather factor.  The January figures showed big negative swings in transportation and warehousing workers (-86,600 month on month) and in temporary workers (-49,500) that may have been storm-induced.  On the other hand, the manufacturing sector was unusually strong, gaining 49,000 workers, 62,000 of them in durable goods (an area that’s especially weak during recessions and strong in recoveries).

Also, the BLS has just carried out a periodic overhaul of the analytic framework it uses to generate the employment data.  Teething pains, anyone?

In addition, if the recent past is any guide, the 36,000 figure is going to be revised up.  Each monthly figure is redone twice–as new data come in during the following month and the month after that. Recently, all the revisions have been in the plus column.  For example:

–The final November jobs figure is +93,000.  It was initially reported as +39,000  and was revised up to +71,000 in December.

–The December figure was initially reported as +103,000.  It has just been revised up to +121,000.

Wall Street isn’t worried (so far)

Investors remain bullish in the face of the weak job numbers, for several reasons:

–asset allocation shifts.  Some domestic retail investors are starting to reverse their ultra-cautious over-allocation to fixed income and beginning to buy US stocks for the first time in a couple of years.  Others, professionals included here too, having already made a lot of money in emerging markets, are taking profits there and rebuilding their US holdings.

–the expectation of favorable revisions in the jobs data, given other indicators that the US economy is building positive momentum.

–earnings results from publicly traded companies.  These are coming in very strongly, and leading indicators are signalling that more good news is in store.

–the number of people unemployed vs. the number employed.  Although there are still around 14 million people unemployed in the US, or twice the “normal” number, there are over 800,000 more people employed today than a year ago.  In a bull market, and when trying to figure out whether firms will have year over year earnings gains, the latter figure is probably more important to Wall Street.

investment implications

Asset allocation shifts, or what’s sometimes called “the weight of money,” is a transitory phenomenon.  At some point, investors become satisfied with their new portfolio structure and stop making changes.  Then, this influence–at present, favorable for stocks–disappears. So it’s not something to bet the farm on.  Nevertheless, while investors are looking for stocks to buy rather than things to sell, dips in the stocks of underachieving companies may be milder, and the positive response to good news may be more enthusiastic, than one would normally expect.  To me, this means potential trading opportunities over the next couple of months for anyone who already has a reasonably constructed portfolio.

One thing to keep an eye on:

Everyone, me included, is assuming that the BLS figures are simply wrong, that the actual job situation is better than the numbers suggest.  We’re all thinking that when the weather gets better and the BLS shakes out some of the kinks in its system the numbers will end up being in the +150,000-200,000 range.  If they’re not, that realization will likely usher in a period of stormy stock market weather.  Because it would also take away some of the sense of urgency that asset re-allocators are currently feeling, we might have an ugly month or two.

The September 2010 US Employment Situation: more minuses than plusses

the September report

The Bureau of Labor Statistics of the Department of Labor issued its monthly Employment Situation on Friday, October 8th.  The bottom line:  a loss of 18,000 jobs during the month, excluding the end of employment for another 77,000 temporary government census workers.  September will have been the last month where census workers will be a significant factor.  Of the peak of 564,000 temporary census employees in May, only 6,000 now remain on the  federal payroll.

The BLS also revised down the employment figures from the past two months by 15,000 jobs.

To me, the report has three important aspects:

–the service sector, the nation’s largest, continues to chug along, adding new jobs at an 80,000+ per month rate (86,000 in September),

–the goods producing sector, manufacturing and construction, has stopped hiring new employees.  The sore point seems to be non-residential construction, which shouldn’t be much of a surprise, and

–in a new development, local governments have begun to deal with budget deficits by laying off workers.  Nationally, teachers comprise 55% of the local government workforce.  They made up two-thirds of the 76,000 local government layoffs during September.

The overall picture that the September report presents is one of an economy more or less in idle from an employment perspective.  Private sector job gains are below the 100,000 level that represents absorption of new entrants into the workforce.  While Federal and state worker levels are holding steady, cities and towns are being forced to shrink their payrolls to adjust to lower levels of tax revenue being received.  It’s not clear how long this process will take.

more information from the household survey

The information above comes from what the government calls the “establishment” survey, that is, data it obtains from employers.  The BLS also does a “household” survey, which consists of interviews with employees.  The employee sample is smaller than the employer sample, so the margin of error in the former is larger than in the latter.

involuntary part-time work rising

One of the questions the BLS asks employees is whether, if they are working part-time, they are doing so voluntarily or not.  They also try to find out whether “involuntary” means their hours have been cut back by their employer or that the respondent wants full-time work but can’t find it.

The involuntary part-time worker group has jumped by 943,000 over the part two months, to 9,472,000.  Of that increase, about two-thirds of the newly part-time workers said their employers cut back their hours.

This is a potentially troubling development.  How troubling isn’t yet clear, since most of the rise comes from a seasonal adjustment of the raw data by government statisticians.  The idea is that workers who have their hours cut back during the summer normally have them restored in September.  That hasn’t happened so far this year.  At the very least, though, this is another potential weak point for the US economy.

my thoughts

Every economic recovery is marked by an initial surge in activity as consumers “catch up” on spending deferred during the bad times.  After that, the economy settles back to “normal” growth.   In the case of the US, continuing structural adjustment–hopefully municipalities will prove to be the final area to be pruning jobs–means that for now “normal” growth isn’t strong enough to add jobs.

No wonder the Fed it stalking about additional easing measures to stimulate job expansion.

Whether that will work or not is another question.  The day before the Employment Situation, BLS released August data in its series of job vacancy reports.  (See my post: FRB can’t change construction workers into manufacturing workers.)  This latest JOLT report shows that employers continue to have 3.2 million unfilled job openings, 800,000 more than a year ago, but can’t find suitable workers to fill them.