April 05, 2004

The Jobs Recovery? Look Again

Fair enough, dear reader. You can't keep saying it's a jobless recovery if the jobs show up, right? Right. That said, nothing in Friday's employment report casts doubt on several of our investment arguments. Namely, average hourly earnings are still disinflating, high-income manufacturing jobs (when they ARE being replaced) are being replaced by lower income service jobs, and consumer wage growth is too anemic to help reduce that most heinous of moral and economic burdens: debt. I did go through the employment report myself to spot the key statistics. But since my friend Greg Weldon does it so well, I thought I'd quote you a fair piece from him. Before I do, though, let me take on one other idea...that the positive jobs report will lead to a Fed tightening. No way. Bond prices are getting whacked on just such an expectation. But as Greg shows below and as I've said before, the consumer, especially the homeowner, is making his tenuous living at the margin as it is. Rising rates threaten to tip him over into chaos (what with incomes growing so poorly to begin with.) The only scenario under which the Fed raises rates is massive inflation in commodity prices, brought about by shortages in raw materials. More on this later. For now, I'd look to buy bond calls in a day or two, on a quick turnaround play...once the market realizes the fundamentals of the consumer economy simply can't handle a rise in rates. On to Greg...on why a rate hike does NOT follow naturally from the jobs report. Emphasis added is mine. "BUT,we have a problem with all that. DEBT, a lack of consumer income, over-leveraged housing, and no savings. Okay, so we have FOUR problems with thoughts of upward spiraling short term interest rates. To us, they are all symptomatic of the same bottomline dynamic as relates to debt. We have a problem with all that, when we note the EMPLOYMENT Report, and focus on the following factoids extracted from such: * Number of People Working Part-Time for Economic Reasons, up +296,000 *Number of People Who Could ONLY Find Part-Time Work, up +80,000 *Part-Time Workers, up +294,000 (implying Full-Time Jobs FELL) * Household Survey, Unemployment, up +182,000 *Job Losers, up +284,000 * Percent Unemployed Longer than 27 Weeks, 23.9%, up from 22.9%, with 1.988 million in this category during March, up +117,000 from February. *Persons Currently Want a Job, Cannot Find a Job, 4.843 million, a NEW HIGH, and up +97,000 from last month * Number Not in Labor Force, 75.9 million, a NEW HIGH, and up almost +900,000 from November. *Employment-to-Population Ratio, 62.1, DOWN from February's 62.2, and DOWN from the January rate of 62.4 In other words, DEPITE all the self-gratuitous knee-slapping in the pop-media as relates to 1Q job creation, LESS of the US Population has a job now, than three months ago, AND more people are working part-time just to make ends meet. Fed tightening ??? Further: * Aggregate Weekly Payrolls grew only +0.1% for the month, LESS than the +0.2% rise in February, and FAR LESS than the +1.0% rise in January. * Aggregate Weekly Payrolls, Retail, down for the second month in a row. *Aggregate Weekly Payrolls, down in Transportation, down in Warehousing, down in Information, down in Business Services, down in Durable Goods, down in Non-Durable Goods. Moreover, against the Seasonally Adjusted rise in Service Payrolls (+230,000,) we note that Aggregate Weekly Payroll figure for Service Providing Industries was UNCHANGED, after rising each of the last two months. This measure clearly indicates that a surge in weekly hiring, has ENDED already. And how about hours, and income ??? NEITHER dynamic supports thoughts of higher interest rates. Note: * Weekly Average Earnings FELL to $523.70 from February's $524.58. *Weekly Average Hourly Earnings posted their third sub-2% yr-yr rate in the last four months, with outright declines posted in several industries, including Construction and Retail, the two surprise-stars in terms of headline job growth. *Total Aggregate Hours, DOWN (-) 0.1% for the month, leaving it down over the last two months combined, and unchanged over the last four months on a cumulative basis. *A VAST and BROAD-BASED MAJORITY of industries reported LESS Hours being worked, including -Wood Products -Primary Metals -Machinery -Computers - Electronic Products - Appliances - Transportation Equipment - Food - Beverages - Textiles - Apparel - Printing and Paper - Petroleum and Coal - Chemicals - Plastics and Rubber - Transportation - Warehousing - Information - Professional and Business Services - Private Service Producing ALL THOSE industries are working LESS Hours. Sorry, we just do NOT see labor-market strength within this data series.


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