How Job Creation Actually Totaled 787,000

Includes: DIA, QQQ, SPY
by: Jason Schwarz

The jobs number, while it shouldn’t be interpreted as long term terrible news, is definitely a downer for today’s market because of the high expectations. Once again, economists got ahead of themselves in thinking that the economy is ready to surge. Instead, the economy continues its steady rise off the bottom which should be interpreted as good news.

Realistically, even with the census jobs, how can you ever expect to have the best jobs growth number since 1983? I’m not going to run for the hills just because expectations got out of whack.

We added 431,000 jobs for the month, a year ago we were losing 500,000 jobs. This is now the 5th month in a row showing modest gains. Although the private sector only contributed 41,000 jobs it did increase wages and hours worked per worker. It looks like the lack of hiring is a result of uncertainty surrounding health care reform. Employers want to maximize current capacity to avoid having to pay the higher fixed health care costs.

Weekly hours for current employees increased so much that the equivalent jobs created would have produced 356,000. How would the market react to headline job creation of 787,000? This health care issue may continue to hurt the job market more than anybody anticipates.

The takeaway from this report is that that hiring is being replaced by an increase in hours; this still produces excellent economic growth but the market will take time to adjust to this reality. Wages are up at a 5.33% annual rate which drives economic growth as well. Also remember that civilian employment, which includes self employed and start up businesses is up 1.9 million in 2010.

Although today’s market action is disappointing, the last two weeks of market action have been very positive. Two weeks ago Apple (NASDAQ:AAPL) was at $240; today it’s at $260. The QQQQ was at $44.80; today it’s at $46. Baidu (NASDAQ:BIDU) was at $71; today it’s at $75. The EUO was at $23.80; today it’s at $26. Our group of holdings has outperformed the Dow over these two weeks as it continues to hover at 10,000. Consider that on May 13th when the Dow reached 10,950 Apple closed the day at $258. Apple back at $260 with the Dow hovering at 10,000 is a very good sign for Apple.

Disclosure: Long AAPL, EUO, QQQQ, BIDU