Employment Situation, October 2016

The Bureau of Labor Statistics of the Labor Department issued its monthly Employment Situation earlier today.  The results were not spectacular, but they were good:

–the economy added +161,000 new jobs last month

–revisions to the prior two months’ figures were both positive, totaling +44,000 positions.

Nothing in this to derail the Fed from raising the Fed Funds rate next month.

wage gains

Average hourly non-farm wages in the US were $25.92 in October.  That’s $0.10/hr more than in September and $.18 more than in August.  This doesn’t sound like much.  But the year-on-year growth in wages over the past year has been $.71/hr, which is a wage growth rate of 2.8%.  If we were to annualize the results of the past two months–not a calculation you’d want to bet the farm on–the growth rate is 4.2%.

Maybe too preliminary, but also maybe an early warning of rising wage pressure in the US.  The importance of that is that we would have (finally) reached full employment–meaning also that the Fed switching to rate-raising mode is at best timely.  At worst, it would mean that the Fed is at least a little late to the party.

Of course, given the scary example of Japan repeatedly tightening policy prematurely and snuffing out economic rebounds over the past quarter-century, the Fed has from the outset deliberately decided that later is better than sooner.  Nevertheless, further wage gains will translate into more aggressive Fed tightening moves.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employment Situation, July 2016

This morning at 8:30 edt, the Bureau of Labor Statistics of the Labor Department released its monthly Employment Situation report for July.

The numbers were strong.

The economy created +255,000 new jobs last month.  Revisions to the prior two months’ data were also positive.  The very weak May figures that caused financial markets alarm bells to ring were bumped up from +11,000 new positions to +24,000; the extra-strong June results edged higher to +292,000 from +287,000.

The effect of this ES report, I think, is to dissipate all the concern about incipient economic weakness that caused the Fed to refrain from raising interest rates at its last two meetings.

Although I’ve never been a big fan of financial companies, traditional banking operations, where interest margins on loans have been severely squeezed by years of easy monetary policy, would seem to me to be the biggest beneficiaries of this development.  My guess is that the ES will also encourage the stock market to continue its drift away from mature cash-generative companies to more capital investment-intensive secular growth names.

Employment Situation for June 2016

Mutual funds on Monday.  Today’s post is about the blowout jobs number reported this morning.

At the usual time, 8:30 am edt, the Bureau of Labor Statistics of the Labor Department released its monthly Employment Situation report today.  In it, last month’s paltry +38,000 new jobs figure was revised down to +11,000.  But April’s number was revised up by an almost offsetting amount.  More importantly, June’s new hires were reported at a huge +287,000 new jobs.

The June report goes a long way toward convincing economists that the very poor jobs showing for May is a statistical quirk, not a signal of a major slowdown in the US economy.  …the Federal Reserve, too, which had cited the May figure  + possible fallout from Brexit as reasons to refrain from raising the Fed Funds interest rate as planned last month.

 

Pre-market reaction to the news was at first subdued, with S&P 500 futures trading just above breakeven immediately after the announcement.  But while I’ve been writing this, futures have improved to a gain of about 3/4 of a percent.

 

Wage gains, another aspect of the ES that investors have been looking hard at–for signs of incipient inflation, and therefore the need to hike interest rates more quickly to stave off excessive price level gains–were very small.  Over the past year, wages have risen at a 2.6% rate. That’s higher than the current inflation level, but not by much.

All in all, a comforting report.

employment and the March 2016 jobs report

Last Friday, as usual, the Bureau of Labor Statistics of the Labor Department published its monthly Employment Situation for March 2016.  The report said the economy added 215,00o new positions last month.  Revisions to prior months’ data were insignificant a–a loss of -1,000 jobs.

Despite the continuing strong jobs creation, the unemployment rate ticked up slightly to (a still very favorable) 5% of the workforce.  In the past, that figure would be regarded as full employment. The 5% would be regarded as “frictional” unemployment, meaning it consists either of people who have quit their old job because they have a new one but are not starting right away, or of project workers who routinely have small gaps between jobs.

That would, in fact, be quite worrying, since wage inflation acceleration–and therefore overall inflation acceleration–would be imminent.

The financial markets have not been focused on the very low unemployment percentage, however.  They have been, and continue to be, worried about the lack of wage gains–which, they argue, is evidence of continuing slack in the labor market.

Two recent contrarian thoughts:

–some are saying that the uptick in the unemployment rate is (finally) evidence that disheartened workers who have long since left the workforce (by stopping looking for work) are beginning to think that getting a job is now possible and are re-entering the workforce.  So it’s an early sign of a significantly better tone to the labor market.

I think this is possible.  Good news, if so.  The only question I have is how it could have taken over six years since the economy bottomed for this to occur.

–the Fed is beginning to argue that wage gains are actually greater than corporate reporting would lead us to believe.  The idea is that older, higher-paid workers are retiring and effectively being replaced by younger, lower-paid new hires.  This is something that always happens in the early stages of economic recovery.  Again, the question remains why wage-flattening has been going on for well over half a decade.

More on this topic tomorrow.

 

Employment Situation, October 2015

The Bureau of Labor Statistics, part of the Labor Department, issued its monthly Employment Situation report for October this morning at 8:30 est.

After two below-trend reported jobs gains in August and September, the October figures were very much above trend, at a gain of +271,000 net new jobs.  Revisions to the prior two months were mildly positive, at a total of +12,000, but didn’t change the general picture of shifting into a lower economic gear painted by those ES reports.

The main significance of the October report, I think, is to reaffirm the health of the economy and to remove any hesitation the Fed might have had about raising interest rates slightly next month.

In futures trading, Wall Street is so far taking a ho-hum attitude to this news.  S&P futures have declined by about a quarter of a precent from where they were before the announcement.

 

Employment Situation, July 2015

the report

At 8:30 am eastern time, the Bureau of Labor Statistics of the Labor Department released its monthly Employment Situation report for July 2015.

The figures, a gain of +215,000 jobs, all but 5,000 of them in the private sector, were virtually identical with the consensus estimates of domestic macroeconomists.  Revisions of prior months’ data were mildly positive–a total gain of another +14,000 jobs.

Wage gains continued at an unremarkable +2.1% year on year advance.  The unemployment rate remained steady at 5.3%, which is low by historical standards.

significance

It seems to me that this report pretty much removes any doubt that the Fed will begin raising the Fed Funds rate next month.

As I’m writing this, financial markets seem to be taking the news in stride.  We’ll see more as the day progresses.

What this report reinforces, as have prior ES reports in 2014-15, is that the economy in the US is growing strongly enough to create jobs for all those leaving schools and entering the workforce for the first time, plus another one million or so positions a year to eat into the rolls of the unemployed.

 

the May 2015 Employment Situation

the May Employment situation

At 8:30 am, est, this morning the Bureau of Labor Statistics of the Labor Department made its usual release of the monthly Employment Situation.  The report showed the economy added +280,000 new jobs during May, substantially higher than economists’ estimates of +225,000.  Of the total, 262,000 positions were in the private sector, 18,000 in government.

Gains in government employment are almost exactly offsetting declines in mining/oilfield.

revisions

Revisions to prior months’ estimates added another 32,000 to the tally.

Average hourly earnings were up by 2.3%, year on year, showing no acceleration from their recent tepid growth, despite the low current unemployment rate (5.5%) and the sharp employment gains.

why the report in important for investors

What I find interesting is the financial market reaction to the positive report, namely:

–S&P 500 future have declined modestly

–the US$ is up by about a percent against the euro and the yen

–gold is down a percent in dollars (flat in euros or yen)

–in pre-market trading, financials (higher interest rate beneficiaries) are doing relatively well, utilities (whose attractiveness as income vehicles is lessened by higher rates) relatively poorly.

the message

In other words, the message the market is taking from the ES is that the Fed is going to begin to raise short-term interest rates relatively soon (September?).

I think this ES most likely marks an important turning point in market psychology.  Since early 2009, investors have taken heart–and portfolio positioning cues–from the idea that interest rates were extremely unlikely to rise and might possible decline. Investors who adopted an appropriate portfolio structure have been rewarded by seeing rates fall to what were initially undreamed of low levels.

That period is over.

Now rates are highly unlikely to fall and may rise.  Although rates will doubtless rise very slowly and may reach “normal” at much lower levels than in previous economic cycles, this is an important distinction.  It implies that the market will (finally) reorient itself into anticipation of rising rates.  It doesn’t need to have a precise idea of where rates are headed.  The key thing is that the easing trend of the past seven years or so is behind us.

More on Monday.