Is the Jobs Data a Concern?

Fears about the pace of the recovery have caused stocks to tumble. Technology stocks are being particularly hit hard with NVIDIA (NVDA) and Micron Technology (MU) down by more than 5% on the day. Financials and homebuilders are also faring poorly. Both Zions Bancorp (ZION) and Lennar (LEN) have large intraday losses.

At the heart of the problem is the labor situation. The employment component in the ISM Survey worsened slightly to 46.2. (Readings over 50 signal expansion, or in this case, hiring.) Initial jobless claims also rose, reversing a previously weekly improvement. Dirk van Dijk pointed out on our Analyst Blog, "In recent weeks progress on claims has stalled out and become erratic."

Compounding matters is the Monster Employment Index, which also worsened. The index declined to 119 last month from 121 in August. Monster Worldwide Vice President Jesse Harriott observed, "U.S. employers continue to exhibit caution when it comes to hiring." Shares of Monster Worldwide (MWW) are down nearly 4% today.

Needless to say, traders are feeling pretty darn skittish about Friday's labor report. The consensus estimates call for 180,000 nonfarm payrolls to have been shed and the for the unemployment rate to rise to 9.8%. Keep in mind that forecasts for nonfarm payrolls are usually wrong, so give it a 10% margin of error in either direction. (The actual number could differ by an even bigger number, however.)

So what does this all mean for your portfolio?

First, don't panic. It's just normal market fluctuations. Stocks have risen for 7 consecutive months, so we're overdue for a pullback. Even the strongest of bull markets incur periodic bad days (and weeks).

Second, pay attention to what all of the data is telling us. The economy is getting better and we are moving away from the financial abyss. On the other hand, we're not seeing a V-shaped recovery. Rather, we're seeing a slower recovery that is uneven. For some Americans, there is no recovery in site. Other people, however, are finding jobs.

It's a mixed picture for the economy and we won't see clear blue skies for awhile. But over time, the labor markets will start to improve. (Not soon enough for many, however.)

Finally, realize that investing is messy. There are no magic numbers that tell you when to buy and when to sell. However, dips can provide buying opportunities. Look for where earnings estimates are being revised higher -- e.g. Intel (INTC) -- and realize that the some of the positive revisions are for companies that you would not expect -- e.g. General Mills (GIS).

Comments

[market ace:]

I do not belive this staement at all

"Finally, realize that investing is messy. There are no magic numbers that tell you when to buy and when to sell."

I became a firm believer in 5% trailing stops long ago as they are a sure way of how to know when to sell. The 52 week lows are also a great guide as to when to buy again. Sure day's like today can trigger some that look bad right now and the last down turn triggered a lot that have since gone back up (until today anrway). However, in the longer run this will prove to be a winning startegy even if I miss the very top.

The mantra of "less worse" cannot carry a market forever, especially with a P/E of over 130 and reality again setting in. Mr; Bernanke's recession may be over, but for many others it is just beginning.

When I am 100% in cash it will coonfirm that this rally is over ad I will be glad to play it this way and wait for the next huge drop before entering again.

Oct 01 05:18 PM

[Roger Knights:]

"The economy is getting better and we are moving away from the financial abyss. On the other hand, we're not seeing a V-shaped recovery. Rather, we're seeing a slower recovery that is uneven. ... It's a mixed picture for the economy and we won't see clear blue skies for awhile."

The reason any slowdown or down-turn the "recovery" is alarming is that the economy must attain what Larry Summers called "escape velocity" in order to earn its way out of debt. If the "goose" the government has given to the economy doesn't lift it into orbit, it'll come back down with a thud, into the black hole of debt and default and devaluation.

Oct 01 07:02 PM

[DavyJ:]

Re: "First, don't panic. It's just normal market fluctuations. Stocks have risen for 7 consecutive months, so we're overdue for a pullback. Even the strongest of bull markets incur periodic bad days (and weeks)."

On the other hand, when there is panic, he who panics first gets the best price.

Oct 01 08:52 PM

[Poor Texan:]

I keep hearing that unemployment is a lagging indicator. If the economy is moving up, unemployment must be lagging by a couple of years. Lot of pressure on the non-profits to feed the hungry while the acorns are nourished by the government.

Oct 01 10:45 PM

[Denis Gould:]

In this cycle unemployment is going to lag so far that it won't have time to react at all before the economy turns down again. Consumer spending has fallen in reaction to falls in wealth and income and is not coming back. The government has stepped in to fill the hole but in the process has created an unsustainable deficit which will morph into a debt spiral. The only thing that matters now is creating employment.

Oct 01 11:33 PM

[Daniel Herkes:]

Yes. And the new jobs need to be stable. I work with a bunch of nervous people. They have legitimate anxieties about jobs and all that a job entails. Houses, cars, and trips to the mall for Christmas all depend on a stable job.

On Oct 01 11:33 PM Denis Gould wrote:

> The only thing that matters now is creating
> employment.

Oct 02 04:48 AM

[aaavoid:]

Anyone expecting a re-test of March lows would be very unrealistic. With so much liquidity in the market and interest rate nearing 0%, it just wouldn't be possible. Unless of coz if the likes of Citi and BAC suddenly do a Lehman which will not happen.

Oct 02 05:29 AM

[dw57:]

you sort of wonder. when people say that jobs are a lagging component and its not that important. since a business (which has may or may not be public traded) needs willing customers who can afford their offerings. and unless they sell B2B (and even then at some point they are selling retail,i.e. a consumer). and 99% of consumers are some ones employee. just how long will that business (or businesses) be a going concern if employment doesn't take off? and soon? let alone have money to invest in the business to improve it.

Oct 02 10:53 AM