Weekly Initial Jobless Claims increased more than expected over the week inclusive of the holidays, leaving more Americans starting the new year unemployed. The increase was not much, but it will pull the four-week moving average higher. It's hard to blame the bad news on the fiscal cliff, though it may be indicative of new health care costs for small businesses. The result was that futures turned lower, and the SPDR S&P 500 (SPY) was off fractionally to start the day Thursday. If the weekly data marks the beginning of a trend of workforce cuts due to higher health care costs for small businesses, then the economy and market could soften in the year ahead. Thus, investors should keep an eye on the data with this in mind as 2013 unfolds.
The government reported that weekly jobless claims rose by 10,000 to 372,000 in the period ending December 29. That's a figure above the four-week moving average, thus acting to pull it higher to 360,000. While this data is not a staple forecast for economists due to its regular reporting weekly, the result was also above the economists' consensus for 363K.
It's not in the spirit of the holidays to lay-off employees, and the news certainly soured the new year for a good number of Americans. While the most dynamic event of the year so far likely affected construction spending (reported yesterday), I do not believe we can blame the fiscal cliff for the issue seen here in employment, as it was yet unresolved and uncertain last week.
However, the President's health care programs are now the law of the land, and however we may feel about it individually, some small businesses are claiming that it's a burden to their growth. Thus, if a trend develops for a higher rate of weekly claims, we might link it to higher operating costs indicated by some small businesses, which would be hard to bear given the less than optimal economic environment. This is not to say the health care program is not demanded by the majority of America, or needed, affordable or even a right of humanity. It's just to say that it might cause a ripple (some on the right say tsunami) in the economic data flow. Such an impact is probably not priced into stocks at this point, and would lend to a more conservative investment strategy this year.
Looking again at the report, the advanced seasonally adjusted unemployment rate held at 2.5% for the period ending December 22nd (lagged in reporting), with the number of unemployed up 44,000, to 3.245 million. The moving average here was likewise hiked to 3.224 million. The total number of Americans receiving benefits through all programs declined by 68,727, to 5.4 million, in the period ending December 15. I often make note here that this number declines for both good and bad reason, including an improving economy, but also due to folks just running out of benefits and dropping off the labor force radar screen.
Challenger, Gray & Christmas today reported that after three consecutive months of increased layoff activity, December Job-Cuts fell to the second lowest monthly total for 2012 (32,556). Indeed, major layoff announcements were hard to come by on the wire around the holidays but some smaller cuts were recently noted for companies including Goodyear (GT). Earlier in the month, Citigroup (C) said it would cut its workforce significantly. Otherwise, we might attribute cuts to small businesses, which employ the majority of the American workforce. Perhaps the only positive of lean economic times is that it forces companies like Citi to cut fat and solidify operations, which in the end is good for shareholder return.
The shares of employment services companies are often studied for reaction to employment data, and they are mixed and only moving fractionally in either direction. The change in unemployment claims was relatively small, and reading into it for the broader market or the economy is a reach today. However, if a trend is truly beginning on higher health care costs for small businesses, investors would be wise to take heed. Such a trend would lend to a more conservative investment strategy moving forward.
Employment Services Cos.
Thursday Morning Move
Robert Half Int'l (RHI)
Korn Ferry Int'l (KFY)
Monster Worldwide (MWW)
Kelly Services (KELYA)
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.