Analysis: January 2012 BLS Jobs Report

The US unemployment rate ticked up to 7.9% (from 7.8%); the broader underutilization rate held steady at 14.4%.

• According to BLS estimates, +157k jobs were added in January, slightly lower than consensus estimates of a +166k increase; November and December payrolls were revised upwards by +127k…subsequently, the US economy added an average of +181k jobs a month in 2012 (not too far off the +200k threshold required to keep up with population growth). 

• The total number of unemployed (12.3M) and long-term unemployed - those out of work for 6+ months - remained steady at 38.1% (4.7M).

• Looking ahead (and now that we have a brief respite from Congress' game of financial/Russian roulette), the labor market may be poised to improve even more as the housing recovery finds firmer footing and consumers remain resilient (albeit not as confident). 

Housing's trickle effect?

• The improving housing market (e.g., 5.5% YoY gains in home prices in November) is having positive impacts upstream (construction (+28k; +300k over the last two years)) and downstream with several consumer-sensitive sectors continuing to benefit (retail (+33k), leisure and hospitality (+23k)).

• Meanwhile, several stalwarts of the labor market continued to add jobs:  professional and business services (+25k), health care (+23k).

• Sectors experiencing payroll contraction included:  transportation and warehousing (-14k; although much of this was due to the post holiday blues) and government (-9k; we all know the story here). 

What’s in store? Key watch items…

On the bearish side:

• China.  While the good news is that the country's full year GDP came in at 7.8% and is expected to slightly improve in 2014, the not-so-good news is that a sharp wedge is being driven between China's haves and have-nots.  Based on the Gini coefficient, a statistic that measures a country's income inequality, China's was 0.47 in 2012 (which is not too far off the US':  0.48; Note:  A coefficient of 1 indicates perfect inequality…which is bad).  This highlights the growing disparity between its upper and lower classes.  While Beijing has taken significant steps to shift China's economy from one reliant on exports to a more domestic consumption model, this rapidly increasing divide amongst its consumers could impede the country's long-term growth plans.  Of course, this would have a "butterfly effect" on other countries and companies who have also made big bets on China as a growth driver. 

On the bullish side:

• EU confidence.  While many European leaders and analysts have prognosticated an end to the Euro Zone debt crisis, recent evidence is providing proof that their (once far-fetched) claims might not be too far off.  Consider the following:  According to the European Central Bank, it will be receiving 137B euros (or 1/4 of the total amount loaned in 2011) from 278 previously distressed banks…two years before their loan repayments are due.  This is significant because it provides the clearest indication yet of financial institutions' rapid return to health and removes a major barrier to the gradual recovery of the bloc's economy (and global economy) which is dependent on the health of its banks.

Analysis: December 2012 BLS Jobs Report

The US unemployment rate edged down to 7.7% (from 7.9%; marking a four year low); the broader underutilization rate also decreased to 14.4% (from 14.6%).

• From a glass half full perspective, +146k jobs were added in November, exceeding consensus estimates of a +100k increase and quelling some fears of the Fiscal Cliff and Hurricane Sandy's impacts.  However, from a glass half empty perspective, September and October job figures were collectively revised downward by -49k and the unemployment rate dip was largely driven by the 350k people who gave up their job searches.

• The total number of unemployed (12.0M) remained flat while the long-term unemployed - those out of work for 6+ months - shrank to 40.1% (4.8M).

• Looking ahead, the January jobs report should reveal more about Sandy's true impact as it will contain a more complete accounting of the storm's impact.  Plus, we should (finally) gain some clarity about the Fiscal Cliff…anyone else tired of hearing about it? 

Consumers continue to seek retail therapy...

• The retail (+52.6k (+33.3k in clothing stores)) and leisure & hospitality (+23k; +14.1k in arts, entertainment and recreation)) sectors continued to staff up in support of the holiday shopping season and consumers' need to satiate their appetites (literally and figuratively). 

• Sizable gains were also seen in professional and business services (+43k; +18k in temp help services - long thought to be a precursor to full time hiring), health care (+20k) and information (+12k).  In contrast, several sectors pared payrolls - construction (+20k) and manufacturing (-7k; -18k for non-durable goods) - with the latter attributable to the higher inventories that companies are contending with. 

• The public sector remained relatively flat (-1k total loss) with gains at the state level offsetting losses at the federal and local levels.

What’s in store? Key watch items…

On the bearish side:

• EU.  The European Central Bank (ECB) cut its 2013 economic forecast for the Euro Zone from +0.5% to -0.3%. This comes on the heels of a Q3 GDP reading of -0.1%…marking the fourth straight quarter of contraction.  While the ECB believes that improved financial market confidence and accommodative monetary policies will enable a gradual recovery in late 2013, with growth in the range of +0.2 to 2.2% in 2014, its questionable strategy of "growth through additional belt tightening" will continue to raise doubts about the bloc's ability to do so.  Note:  The EU continues to be the US' biggest trade partner, accounting for $636B in trade in 2011.

• Help wanted.  The US has had 3M+ job openings for over a year now…leading many to conclude that the US is suffering from a skills gap crisis.  However, upon a closer look at the Jobs and Labor Turnover Survey (JOLTS), there is little data that supports this claim (e.g., manufacturing, long thought to suffer from a dearth of skilled workers, only accounted for 6% of job openings).   Nonetheless, this prophecy may come to pass as industries, such as utilities and construction, increasingly contend with the retirement of skilled workers without a replacement pipeline in place. 

On the bullish side:

• US = energy superpower?  As technology advancements make refineries more efficient and we continue to tap into our newfound abundance of natural gas, the US is on track to be a net exporter of petroleum products in 2011 for the first time in 62 years (source:  US Energy Information Administration).  This is noteworthy because, aside from the US beginning to realize its energy independence ambitions, our nation is becoming a reliable, low cost center of energy outside of the Middle East.  The ancillary benefits are already apparent:  Apple's decision to insource assembly of some iMacs in the US.  As this trend continues, we should expect to see more companies follow suit with an accompanying increase in payrolls likely. 

Analysis: November 2012 BLS Jobs Report

The US unemployment rate ticked up to 7.9% (from 7.8%); the broader underutilization rate decreased to 14.6%.

• A net +171k jobs were created in October, far exceeding consensus estimates of +125k and marking the 32nd straight month of job creation; furthermore, August and September payrolls were collectively revised upward by +84k.

• The total number of unemployed (12.3M) remained flat while the long-term unemployed - those out of work for 6+ months - increased to 40.6% (5.0M). 

• The civilian labor force grew by +578k (to 155.6M) while the participation rate gained by 0.2% (to 63.8%), highlighting the US' improving employment sentiment and driving the slight increase in the overall rate.  

• Looking ahead, additional layoffs may be in store as planned job cuts among US based employers surged 41% in October as companies contend with weaker Q3 results (Note:  Nearly six in 10 companies within the S&P 500 reported weaker earnings; this could be the first time in 11 quarters that Corporate America reported a collective earnings decline; Source:  Challenger report) and the aftermath of Hurricane Sandy.  However, layoffs for the year are still well below last year's rate.

Broad-based gains; consumers leading the way...

• In another sign of improving sentiment, several consumer-driven sectors grew their payrolls:  retail (+36k), leisure and hospitality(+28k), construction (+17k with sizable gains in specialty trade contractors) and manufacturing (+13k).  These trends should continue as we approach the all important holiday season and the slowly healing housing market enables more consumers to feel better about their situations. 

• Significant gains were also seen in professional and business services (+51k including a +13.6k increase in temp help) and health care (+30.5k)

• The public sector reversed course in October as government shed jobs (-13k) with losses occurring at levels.

What’s in store? Key watch items…

On the bearish side:

• EU.  Things appear to be getting worse.  The EU's Purchasing Managers' Index, a key manufacturing and services gauge, fell to 45.8 in October…the fastest rate in three years (Note:  A score above 50 signals growth).  Further contributing to the crisis, are diverging European inflation rates whereby southern economies (e.g., Spain, Portugal) are rising in contrast to their northern counterparts (e.g., Germany, France).  Subsequently, this phenomena may make it harder for the southern countries to sell goods abroad and compete - especially in countries where unions have secured wage increases indexed to inflation. 

• Fear of uncertainty.  While the upcoming US election will bring clarity to the policies that will help shape the global economy, the much larger, financial "Frankenstorm" aka the fiscal cliff lurks with a doomsday scenario of $400B in tax increases affecting 90% of Americans and amounting to an average household tax hike of $3500 (Source:  Congressional Budget Office) coupled with massive spending cuts.  Anecdotally, this uncertainty has been impacting the US economy as companies restrain their investment and hiring decisions.  By some accounts, the fiscal cliff may cause a -3% hit to 2013 GDP (with the payroll tax increase alone accounting for -0.6%), most certainly tumbling the US back into recession.

On the bullish side:

• Housing.  The slowly healing housing market has positively contributed to GDP for six straight quarters with residential fixed investment adding 0.33% in Q3 (vs. 0.3% in Q311).  The benefits are readily apparent:  improved consumer confidence (highest since February 2008) and spending and a growing US manufacturing sector.  As an added reason for optimism, an increasing number of houses are being sold to "boomerang buyers" - families and individuals who previously went through foreclosure.  This number may rise (along with the expectant increase in housing prices) as more buyers who previously defaulted escape the FHA's three year waiting period for mortgage eligibility. 

• China.  The Jeckyll and Hyde act, which has characterized China over the last several years, is starting to more resemble the good doctor.  Consider this:  China's manufacturing sector grew to a four month high, inflation remains in check and the country has signaled its intent to reform state-run companies (e.g., rail, post and salt) and industries (e.g., power, telecommunications, oil and petrochemical).  By loosening state control, many economists believe this will be a key step in re-igniting China's cooling economy.  If so, this may just be what the doctor ordered for the larger, global economy (sorry…I had to).

Analysis: October 2012 BLS Jobs Report

The US unemployment rate dropped to 7.8% (from 8.1%), marking the lowest level in over 3.5 years; the broader underutilization rate remained flat at 14.7%.

• A net +114k jobs were created in September, in line with consensus estimates of +118k; even better, July and August payrolls were revised upward by +86k.

• The total number of unemployed (12.1M) decreased by -456k while the long-term unemployed - those out of work for 6+ months held steady at 40.1% (4.8M). 

• Unlike previous dips in the unemployment rate that were attributable to more Americans leaving the workforce, this one could be construed as the result of true job growth as the civilian labor force actually grew by 418k.  Quite perplexing, however, is how the rate could drop this much in spite of the underutilization rate holding steady…one of the unfortunate drawbacks of using two different data sources (establishment (payrolls) and household surveys) to calculate the overall rate.

Services continuing to pick up the slack...

• Among the big gainers:  health care (+44k; +295k yoy increase), transportation and warehousing (+17.1k), food and drinking places (+15.7k), financial activities (+13k) and professional and business services (+13k). 

• These gains offset  the continued drop in manufacturing (-13k; -38k over the last two months).

• The public sector was a job creator in September (+10k), with gains seen at the Federal and State (education) levels.

What’s in store? Key watch items…

On the bearish side:

• Global Head Cold.  The popular adage "when the US sneezes, the world catches a cold" spoke to our profound impact on the global economy.  The persistent global malaise means we no longer lay claim to this distinction alone.  The ongoing Euro debt crisis coupled with China's cooling economy is perpetuating a vicious circle which, according to the World Trade Organization, will limit global trade expansion to 2.5% in 2012 (vs. 14% growth in 2010 and 6% average growth over the last two decades) and quell the US' export engine which accounted for nearly half of our growth during the recovery.  Coincidentally, the International Monetary Fund forecasts 2012 global economic growth to be 3%.

On the bullish side:

• Housing.  It appears that one of the final legs of the "economic growth stool" may have finally found its footing.  Record low interest rates are driving mortgage application and refinancing spikes, not to mention home price appreciation.  With less money being spent on mortgages (which represented 33.8% of each households average spending in 2011), consumers have more money to spend on other things…like beer (Note:  US beer shipments rose 1.9% YTD after falling for three straight years).  However, we must remain wary of a couple factors that will continue to suppress the housing recovery:  Fannie/Freddie Mac's "putbacks" (forcing banks to take back sub-prime mortgages) and Dodd-Frank legislation (requiring banks to rigorously document borrowers' ability to pay).

On the neither bearish/bullish side (sorry…I'm trying to remain like Switzerland on this one):

• Presidential Election.  The unemployment rate drop to below the symbolic 8.0% threshold deprives the Republican Party of a critical argument for regime change, five weeks before the November election.  Could this be the 2012 game changer?  If so, US businesses and citizens alike will need to consider the certainties of President Obama's platform:  Obamacare, tax legislation, business regulation, etc.

Analysis: September 2012 BLS Jobs Report

 The US unemployment rate ticked down to 8.1% (from 8.3%); the broader underutilization rate decreased to 14.7% (from 15.0%).

• The US labor market continues to tread water with +96k jobs created in August, well below consensus estimates of +125k and the +149k average monthly growth rate in 2012; further pouring salt in the wound, June and July employment figures were collectively revised downward by -38k. 
• The total number of unemployed (12.5M) decreased slightly while the long-term unemployed - those out of work for 6+ months also shrank to 40.0% (from 40.7%).
• Quite alarming, 368k workers left the labor force last month…this was the primary driver of the decrease in the unemployment and underutilization rates.  

Americans still hungry and thirsty…services up as well.

• In a sign that may speak to improving sentiment and consumer resiliency, food services and drinking places continued to gain (+28k; +300k over the last 12 months) while other service-related sectors also grew:  professional and technical (+27k which includes gains in computer-related (+11k) and consulting (+9k) services), health care (+17k) and utilities (+9k).
• Manufacturing shed 15k jobs last month as companies remain weary of increasing payrolls given the lingering economic struggles in the EU and China and the cloud of uncertainty caused by the US' looming fiscal cliff.
• The public sector continued to shed jobs with the most losses being experienced at the state and local government levels (-7k).

 What’s in store? Key watch items…

On the bearish side:

• The decline of the middle class.  Based on a study by the National Employment Law Project (NELP), the market for middle class jobs has shrunk with most job creation occurring in lower paying areas (see the aforementioned trend in food and drinking).  Consider the following:  mid wage occupations (as based on median incomes) suffered 60% of the job losses during the recession but accounted for only 22% of job growth during the recovery.  In contrast, higher wage occupations lost 19% but grew by 20% and lower wage occupations lost 21% but grew by 58%.  This evolving structural change will continue to "hollow out" the middle class and may serve as a long-term weight on the US economy.
• The jobless generation?  The International Labor Organization predicts that Euro zone youth unemployment (for 15-24 year olds) will remain above 21% through 2017; in the US, it will range between 13-17%.  The impacts of temporary and long-term unemployment  among this group may be catastrophic leading to future generations being trapped in lower paying jobs and talent shortages as younger workers are deprived of opportunities to develop skills and/or move abroad.

On the bullish side:

• Euro zone.  Hard to believe that the EU would be on the bright side of the ledger given its ongoing struggles.  However, there is some cause for hope and change (apologies…I watched President Obama's speech last night).  Given the ECB's decision to stabilize struggling government debt markets through the unlimited purchase of short-term bonds (thus lowering borrowing costs and infusing the likes of Spain and Italy with much needed capital to run their countries), it is hoped that this move will go a long way towards quelling their crises.  The catch:  countries that avail themselves of this solution must agree to additional budget cuts and economic reforms…a tough political sell. 
• Household debt.  While much has already been made about the housing market recovery, another positive trend to note is the US' gradually decreasing household debt.   Total US household debt fell by 0.5% in Q2 to $11.38T, almost entirely due to falling mortgage balances.  With further debt reduction, this may put US consumers on firmer financial footing.

Analysis: August 2012 BLS Jobs Report

The US unemployment rate ticked up to 8.3% (from 8.2%); the broader underutilization rate increased to 15.0% (from 14.9%).

• In a surprise, a net +163k jobs were created in July, far surpassing consensus estimates of +95k and June’s paltry +64k increase; on average, 105k jobs have been created over the last three months.
• The total number of unemployed (12.8M) increased slightly while the long-term unemployed - those out of work for 6+ months decreased significantly to 40.7% (from 41.9%). 
• However, the jobs report was not all good news as the unemployment rate rose despite a US population increase and the departure of 150k civilians from the labor force – two factors that usually act to decrease the overall rate.

Positive signs ahead?

• Quite interestingly, several consumer/employer sentiment-related sectors experienced growth:  professional and business services (+49k; +14k in temp help), food services and drinking places (+29k), and manufacturing (+25k, with most gains in durable goods).
• Employment stalwart, health care, grew (+12k) while retail, construction, transportation and warehousing and financial activities showed minimal change.
• The public sector continued to shed jobs with the most losses experienced at the local government education level (-7k).

What’s in store? Key watch items…

On the bearish side:

• Political gridlock.  In the ongoing saga worthy of its own soap opera, the uncertainty caused by government inactivity continues to weigh on the global economy and job growth.  From the EU’s political haggling over how to handle its sovereign debt crises, to US tax/health care reform, to Congress’ political game of chicken (aka the looming fiscal cliff), government squabbling has made companies wary of hiring as they have no idea what 2013 holds in terms of fiscal/tax policy.  Hopefully, with the conclusion of the upcoming US elections, markets will be able to gain more clarity.
• Manufacturing.  Global factory output continues to decrease as the effects of the EU and China’s economic slowdowns take their toll.  In the US, ISM’s July index reading (49.8) marked the second consecutive month below 50, the baseline threshold for growth.  China and EU fared no better as their respective indicators also showed contraction.  In the near term, it doesn’t appear that things will get any better as order backlogs fell and businesses’ inventories surged.

On the bullish side:

• Housing.  Housing is slowly waking from its 5+ year malaise.  According to the Commerce Department, housing added 0.43 of a point to Q112 GDP (which was 2.0).  With continued growth, the US may finally be able to rely on a major contributor to GDP growth (and consumer spending), one critical to sustained economic recovery.  Nonetheless, the housing sector still has a long way to go…home values are down by $7T from their 2006 peak and 11M+ Americans owe more than $700B more than their homes are worth.

Analysis: July 2012 BLS Jobs Report

The US unemployment rate held steady at 8.2% despite today's less than stellar jobs report; the broader underutilization rate again increased - this time to 14.9% (from 14.8%).  
• A net +80k jobs were created in June, well below consensus estimates of +100k and the +176k figure reported by ADP; an average of +226k jobs were created in the first three months of 2012; in contrast, only +75k jobs were created during this last quarter.
• The total number of unemployed (12.7M) held steady while the long-term unemployed - those out of work for 6+ months decreased significantly (to 41.9% from 42.8%). 

• Brighter days ahead?  Companies announced fewer layoffs in June (37.5k), the lowest figure in 13 months, according to a report by Challenger, Gray & Christmas.  Moreover, approximately 374k people filed for first time unemployment benefits, a six week low and more evidence that the pace of layoffs is subsiding.

Not much to write home about...
• Significant growth in specialty skill sectors, moderate growth everywhere else:  professional and business services (+47k; +25k in temp help), health care and leisure and hospitality(both +13k), manufacturing (+11k) and construction (+2k; +10k for specialty trade contractors) experienced gains.

• Retail (-5.4k; +1.0k for clothing stores), government (-4k), transportation and warehousing (-2.2k) experienced modest declines.

• Noteworthy…year-over-year declines in unemployment rate by industry:  construction (-2.8%), manufacturing (-2.3%), wholesale and retail trade (-1.4%), leisure and hospitality (-1.1%), government (-0.6%) and professional and business services (-0.2%); notable exception:  education and health services (+0.4%).

What’s in store? Key watch items…
On the bearish side:

• Europe.  Despite yesterday's monetary policy interventions by the European Central Bank (ECB) and the Bank of England (BOE), it is hard to see an end to the financial crises that has plunged the EU into recession.  While an agreement in principle for closer integration of Euro Zone banks provides a (very) small glimmer of hope, EU leaders will continue to struggle with the political balancing act of country vs. currency bloc interests which has so far stifled meaningful progress.  The EU's struggles are hitting home, depressing US corporate profits from Europe by $48.1B in the first three months of 2012 and driving weaker export growth:  only a 4.2% increase (vs. a previous estimate of 7.2%).

• Consumer spending.  The Commerce Department revised Q1 12 consumer spending for a second time from 2.7% to 2.5% (vs. an initial estimate of 2.9%), suggesting that the US' consumer-driven recovery was never as robust as originally thought.  Consumer spending, which accounts for nearly 70% of GDP, isn't likely to recover until the job market does.  With so many unemployed, there is little upward pressure on wages.  Subsequently, hourly earnings is lower now than it was when the recession ended in June 2009 (when adjusted for inflation).  In fact, household spending decreased in May - the first drop in nearly a year.

On the bullish side:• Housing.  Based on the May housing report, pending homes sales rose 5.9% from April and stood 13.3% above year-ago levels.  The May report hasn't seen these levels since 2006 when the housing bubble peaked.  Based on the data, it appears that the housing market has finally turned the corner and the US economy can begin ridding itself of a key growth barrier.

• Additional central bank intervention (kind of a stretch but we'll take what we can get at this point).  Given the spate of dour economic data, central banks of the world have signaled their intent for additional monetary policy interventions to spur growth (e.g., US and BOE quantitative easing, ECB and China interest rate cuts, lower Chinese deposit rates, etc.), a position confirmed by Fed Chairman Bernanke this week.  While the jury is still out on the effects of central banks' efforts, recent studies suggest that the Fed and BOE efforts have made conditions easier for businesses to finance future growth.  With inflation subdued, we should expect to see continued intervention(s).