Analysis: January 2012 BLS Jobs Report

The US unemployment rate decreased to 8.5% (from 8.6%); the broader underutilization rate (a more telling statistic) decreased to 15.2% (from 15.6%). Feb 2009 marked the last time both measures were this low.
• A net +200k jobs were created in December, above consensus estimates of +175k and the +150k level required to decrease the unemployment rate; more importantly, the rate decrease came from job creation rather than people leaving the workforce.
• The total number of unemployed declined to 13.1M (from 13.3M); long-term unemployed, those out of work for 6+ months, remained flat at 5.6M (42.5% of all unemployed).
• The US economy added 1.6M jobs in 2011...progress but far from the total required to offset the 8.8M jobs lost during the downturn.

Broad based gains with a "twist"
• Job growth was widespread: transportation and warehousing (+50k), retail (+28k), manufacturing (+23k), health care (+23k) and leisure and hospitality (+24k). These increases offer further anecdotal evidence of increasing consumer sentiment.
• However, it remains unclear whether this kind of job growth is sustainable as one fifth of the jobs created were seasonal (in the courier and messenger industry) to support online holiday shopping. Furthermore, temp help services, a good leading indicator of job creation decreased (-7.5k) and has remained flat for two months.
• The rate of job loss in the public sector decelerated (-12k), with most coming at the local government level; 280k jobs were lost in 2011.

What’s in store? Key watch items…
While last year’s “greenshoots” have turned into improved consumer sentiment/spending and demand, there is still much to be wary of. Here’s the long-term good and bad:

On the bearish side:
• Euro headwinds. The Euro Zone’s woes continue to weigh on global markets (Note: 40% of S&P 500 companies’ revenues come from the EU). Based on recent data, a downward economic spiral is taking place whereby austerity is driving job cuts, weaker consumer confidence and spending…leading to more entitlement spending and the need for more austerity to keep borrowing costs down. Based on ING estimates, EU GDP decreased 0.3% in Q4, technically putting the Euro Zone in recession.
• Company/Consumer Net Worth. US household net worth decreased by $2.4T in Q311, the steepest decline since the economic downturn roiled financial markets and one of the drivers behind the Fed’s recent call for increased action by Congress to address the housing crisis. While this has not hampered recent consumer spending trends, corporate spending remains depressed (based on the $2.1T in cash held by nonfinancial companies). Continued economic uncertainty will only exacerbate this trend.

On the bullish side:
• Domestic demand. Based on increased US factory orders, increased year-over-year consumer spending during the holiday shopping season and continued growth in manufacturing, the US labor market may have exceeded the tipping point whereby companies must ramp up hiring to satisfy demand.
• Inflation. US inflation appears to be moderating as evident from the Commerce Department’s measure of consumer prices (2.5%; 1.7% if food and energy are excluded) and the Labor Department’s CPI (0.8% annual rate in the last three months). Decreased inflation puts more money in the pockets of consumers and provides room for additional action by the Fed to stimulate/protect the US economy.