the February 2016 Employment Situation

The Bureau of Labor Statistics released its monthly Employment Situation report at 8:30est this morning.  The highlights:

–job gains for February came in at +242,000 new positions

–December and January figures were revised up a total of +30,000 jobs

–the unemployment rate remained steady at 4.9%

–wages, which had gained $.12 on a base of $25.26 per hour last month, fell by $.03 in February.  Although this is just one month, the figure threw some cold water on speculation generated by the strong January figure that wages–and therefore inflation–were finally beginning to rise at a more comfortable level after more than half a decade of mammoth monetary stimulation targeted in part at achieving this result.

All in all, good news.

Nevertheless, S&P futures, which spiked a bit on the announcement, are trading slightly below the pre-announcement level as I’m writing this.

mining

One figure that caught my eye was the situation for the mining industry (including oil and gas as well as metals).  Since the employment peak for the sector in September 2014, mining has lost a total of -171,00 positions, including -19,000 last month.  Despite this, the economy as a whole has created around 4 million new jobs over the same period. Yes, Texas, Oklahoma and North Dakota… have been hurt by the sharp decline in oil prices, and yes, the oilfield-related jobs typically pay very high wages.  But I continue to find it hard to figure where the evidence can be for the persistent belief on Wall Street that somehow the decline of the oil and gas producing industry offsets most of the benefit to everyone else of lower hydrocarbon prices.  that just can’t be the case.

another aside

Window 10 was doing a massive update to my laptop as the jobs report was being made public.  So I turned on the TV to hear the news.  My fingers skipped over Bloomberg on the remote and went to CNBC.  I guess I’ve begun to admit to myself how stunningly bad Bloomberg has become at delivering informed financial comment.  (I assume this is the result of a new management emphasis on physical appearance rather than brain power, but I don’t know.)

In any event, CNBC is now clearly better.  Making Andrew Ross Sorkin the chief moderator certainly helps.  Conferencing in qualified outsiders does, too.  I’ve never cared for the comic relief provided by Rick Santelli, though.  I  find it hard to tell how much he actually believes of the nonsense he spouts, and I find it vaguely offensive.  But this may be tongue in cheek that I just don’t get.

 

household income and the substitution effect

Yesterday, the Census Bureau released its 2013 annual report on Income and Poverty in the United States.

It showed that median household income in the US was an estimated $51,959 last year, up $180 (whoa, baby!) from the median in 2012.  The 2013 figure is still about 8% lower than the pre-recession level and 8.7% below the all-time peak in household earnings in 1999.

Not a pretty picture, but it brings home how long the period of structural change the US is experiencing has been going on.  Personally (meaning I think so but I wouldn’t bet the farm on being correct), I think it’s no accident that the current wage stagnation began with the emergence of the internet as a major economic force.

In economic theory, and also in practice, people can increase their economic well-being in one of two ways:

(1) they can earn more income, or

(2) they can “upgrade” the basket of goods and services they consume by substituting lower-cost equivalents for the stuff they have typically purchased in the past.

The Census Bureau figures show that door #1 has been closed, on average, for a long period of time.  Therefore, to the degree that people want a higher standard of living, they have had to become adept at strategy #2.

In my experience, during economic expansions people typically try to keep up appearances and hesitate to substitute lower-priced items.   It’s only during recessions that it becomes acceptable to, say, substitute a Hyundai for your Lexus or store brand staples for national brands.

investment significance

It seems to me that in the US stock market, we’ve only begun to see the substitution effect expressed in stock prices in earnest during  the past year (for example, teen retailers, soda and food companies)..  I think there’s lots more to come.  It’s probably easier to identify potential losers than winners.  Just look for high gross and operating margins.  Such companies have the most to lose from price competition; they also may have created “price umbrellas” that allow rivals to undercut them.

 

The Census Bureau report has two other figures that caught my eye.

–The 5% of American households headed by 15-24 year-olds saw their incomes jump by 10.5% last year to $34,311.  A proxy for Millennials?

–The median income for over 65 year-olds is $35,611.  That’s up by 3.7%, year on year.  But it’s also less than two-thirds of the $57,538 median for 55 – 64 year-olds.  The future for Baby Boom purchasing power?