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.



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 October 2012 Employment Situation Report: surprisingly good news

the report

At 8:30 am Eastern time this morning, the Bureau of Labor Statistics of the Labor Department released its monthly Employment Situation for October.  The report contains surprisingly good news, on two fronts:

–the Establishment Survey

This survey is wider-reaching and generally considered more reliable.  It’s the one usually referred to when talking about employment in the US (see my post on the ES from last month for more details).

This month’s report shows that the economy added 171,000 new jobs, about 50,000 more than consensus expectations.  That’s comprised of +184,000 in the private sector and -13,000 in the government.

In addition, the August payroll numbers were revised up by +50,000 to +192,000.  September figures were also raised by +38,000 to +148,000.

In total, then, the number of people employed in the US economy is about a quarter-million higher than we thought a month ago.

–the Household Survey

The unemployment rate figures aren’t derived from the Establishment survey.  Instead, they come from a systematic set of telephone interviews done for the Labor Department by the Census Bureau called the Household Survey.  Last month’s HS was controversial because it showed a sharp drop in the unemployment rate to below 8%.  This result was the combination of two bullish factors:  the workforce rose by +418,000 (meaning a lot of people became enthused about finding new jobs–a typical phenomenon as an upcycle starts), and +873,000 people actually found work.  True, the bulk of that was part-time, but still a very positive development.

Democrats proclaimed this was the first sign that their policies were working; Republicans–including Jack Welch, the Paris Hilton of former big company CEO’s–claimed the administration was cooking the books.  My own thought was that this was an anomaly that would likely be reversed in the October data.

Not so, however.

The October Household Survey results are similar in direction, though not as strong in scope, as those of September.  Based on the Census Bureau interviews, the Labor Department estimates that another +578,000 people entered the workforce last month and that  +410,000 found jobs.  The difference–168,000–was enough to cause the unemployment rate to tick up from 7.8% to 7.9%.  But, as I mentioned before, this is what usually happens in a job upturn.

investment implications

Although the initial Wall Street reaction I see as I’m writing this can scarcely be considered enthusiastic, the ES report seems to me to be very good news for the US economy.  The disconnect is likely due to the fact that the bullishness of the ES hasn’t been reflected so far in the 3Q12 earnings reports from publicly traded companies.

This is partly due to the fact that some of the corporate weakness we’re seeing comes from companies’ international operations.  Pry may also be, in effect, the inverse of what we were seeing a few years ago.  At that time, strong retail results reflected continuing spending by the wealthy, while average Americans were still watching their pennies.  Maybe now we’re seeing the spread of recovery to workers who patronize Wal-Mart and Home Depot, not Tiffany and Coach.  It may take careful stock selection to benefit from the employment trend that may be developing.

On the other hand, the Wall Street reaction may simply be that traders in New York are more preoccupied with Hurricane Sandy’s damage to their homes and towns.

the US Employment Situation, September 2011

the report

On Friday morning, October 7, the Bureau of Labor Statistics released its Employment Situation report for September 2011.

The headline number:

–the economy added +103,000 new jobs last month, substantially more than economists had been expecting (not that they’ve been any great shakes recently in forecasting employment recently).

The figures break out into +137,000 positions added in the private sector, with–as has become commonplace in 2011–a net loss of jobs in state and local governments.  The September decline there was -34,000 jobs.

revisions were positive

The BLS Establishment Survey that generates the official employment figures consists mostly in data from large domestic companies.  The initial figures are revised in each of the two months following their first publication, as additional company reports are submitted.

The August figures, which created a sense of panic on Wall Street when they showed a net change in jobs of zero for the month, were revised up.

The original numbers were:

a gain of +17,000 jobs in the private sector (after subtracting the 45,000 Verizon workers who went on strike for a short while), offset by a loss of -17,000 in state/municipal.

The revised figures are:

+42,000 for the private sector, +15,000 for government, for a total gain of +57,000 jobs.  Add the 45,000 Verizon workers who went back on the job in September and grand total for the month is +102,000.  While that’s not enough to absorb all the new workers entering the labor force–to say nothing of draining anything from the large pool of the unemployed–it’s still an ok number by 2011 standards.  And it signals much better economic health than the goose egg initially posted.

July was initially reported as a +117,000 month, and broke out into +154,000 positions for the private sector and -37,000 for state and local government.  The first revision in August trimmed the headline number to +85,000, due totally to the government sector.  Private job additions were actually revised up a bit to +156,000.  But government layoffs were increased by -34,000 to -71,000.

The second revision in September boosts the headline figures to +127,000.   That consists of an addition of +173,000 new jobs in the private sector, offset by a loss of -46,000 jobs by government.

the bottom line

Based on the data we have now, the very negative August Employment Situation report appears to have been a statistical aberration.

By the modest standards of the current economic recovery, July was a blockbuster time for hiring in the private sector.  And during the three most recent months the economy added a total of +352,000 jobs, an average of +117,000 in each period.  The recent positive trend in domestic retail sales  (up more than 5% year on year in September for major retailers) seems to me to reinforce this mildly bullish view.

Running to counter to this trend is the experience of state and local governments, which have together been averaging layoffs of -20,000 a month recently.  The problem here, I think, is that governments were very quick to spend the windfall tax gains achieved during the early-decade housing boom, regarding these years of extraordinarily high income as the “new normal” level of tax receipts.  We still have some way to go, in my opinion, before governments will have shrunk back down to a size that revenues can support.

implications for stocks

It now looks to me like the Wall Street selloff that the August Employment Situation prompted was a mistake–and that the US economy is in considerably healthier shape than bears would have us think.

If so, this realization creates a dilemma for portfolio managers who reacted so negatively to that report.  They have doubtless “explained” to their clients that they acted heroically in dumping out stocks when they did.  Can they now buy back the stocks they panicked out of a few weeks ago at the same or higher prices?  No, not without looking very foolish if their customers notice what they’re doing.   From a client retention point of view, their best strategy is to wait a few weeks and perhaps dub their buybacks as portfolio positioning for 2012.

Therefore, while I expect the September Employment Situation to have a positive effect on stocks, particularly in the Consumer Discretionary sector, that effect may be delayed until later in the year.

the June 2011 Employment Situation report

The Bureau of Labor Statistics released its June 2011 Employment Situation report just before the start of New York trading on Friday.  In essence, the data confirm the message from the May report that job creation in the US has slowed dramatically from the 200,000+ per month clip of February-April.

the data

The June report indicates that the domestic economy created 18,000 new jobs during the month.  The private sector chipped in 57,000 positions, 53,000 of them in services and the remaining 4,000 in goods production.  Governments laid off a net 39,000 workers.

Also, April and May figures were revised down.    For May, reported private sector hiring dropped from the original +83,000 to +73,000; government layoffs increased from 29,000 to 48,000.  April private sector gains fell by 10,000 to +241,000; government layoffs increased by 5,000 to 24,000.

The May and June Employmnet Situation reports are similar in three respects:

–hiring in goods-producing industries has dropped from a 40,000 monthly pace earlier in the year to just above zero;

–service industries, which had been adding over 200,000 new workers a month, have dropped to under a third of that, and

–government layoffs have accelerated by 10,000-15,000 jobs a month.

why the slowdown?

No one really knows.  It’s possible that part of the jobs falloff is due to supply-chain disruptions caused by the devastation in Fukushima in March.  But that would account for at the very most for a third of the decline.  It’s also possible that employers are worried about the parlous state of politics at home or in the EU.  Or the current state of affairs may simply be the standard pattern of recovery after a devastating financial crisis.

As I observed a month ago, the Employment Situation numbers conflict with more positive employment data from private sources.  Since then, we’ve seen June retail sales figures, which were surprisingly strong. And in its admittedly highly volatile employment report, payroll company ADP said a few days ago that it thinks the US economy added 157,000 jobs in June–most of the gain due to a surge in service sector hiring.

the stock market meaning?

There was a lot of hand wringing by TV commentators on Friday morning about the BLS announcement.  The lack of job growth in the US also made the Saturday front page of all the newspapers I read.  This is partly because bad news sells, partly because the bullish EDP report fooled many economic “experts” into substantially raising their BLS estimates at the last minute, leaving them with egg on their faces.  True to their usual form, although the BLS report was a disappointment, pundits made it seem that the whole problem was the economy and not their estimates.

To my mind, Wall Street trading tells a somewhat different story than the media.  Specifically,

–on Thursday, the S&P reacted to the positive ADP report by gaining 1%.  On Friday, the market rallied from session lows just after 11:00 am to close down .7% on the day.  In other words, for the two days the New York market was up.  That wasn’t the very negative result one might have expected, based either on the poor BLS report or the palpable anguish of talking heads.

–I hold ten US stocks in the actively-managed portion of my taxable stock portfolio.  Four of them were up on Friday, and by enough to put the collection of ten in the positive column for the day.  Admittedly, one of my main objectives over the past couple of years has been to find US-listed companies with substantial exposure outside the US.  Still, it seems to me that the selloff on Friday was much less across-the-board than the one that greeted the May BLS report.

–add to this the fact that the rally came on a Friday afternoon, when (very) short-term traders are deciding whether to hold positions over the weekend.  A late afternoon selloff–not a rally–would have been the more natural outcome if traders were feeling bearish.

We’ll see more when trading resumes on Monday.  But so far it seems to me Wall Street has shrugged off the BLS news to a greater extent than I would have expected.  It may be that Wall Street is beginning to make two distinctions I think are important to understanding the profit potential of US-listed stocks.  They are:

–the difference between the structural social/political/ethical problem of having an extra 5% of the workforce unemployed for an extended period of time, and the stock market issue of the spending behavior of the 90%+ of a (growing) workforce that is beginning to get compensation increases for the first time in a few years; and

–the difference between a domestic bond market whose performance is dependent on the strength or weakness of the US economy, and a stock market, half of whose earnings come from outside the US and whose domestic half has virtually no exposure to housing, real estate, construction or autos.  (By the way, this stock market structure is the norm for every other major equity market in the world.)