Employment Report Preview and Market Impact Forecast

by: Markos Kaminis

Over the course of the last two days we've received several employment data points that help us to form expectations heading into the Labor Department's Employment Situation Report, which is due Friday morning. Economists are looking for unemployment to stick at 9.6%, and nonfarm payrolls to increase by 60K when October's jobs data is reported. However, we think that a negative report would produce little threat to the trend of stocks in the near-term, which should tend higher. A positive data point, which is more likely as economic growth progresses, should only support stocks. The only threat is that this might all already be priced in, but we view today's nonaction by the ECB and BOE as catalyst for further market rise.

Thursday morning's economic releases offered a counter perspective to better data released Wednesday. Investors have, therefore, been left confused. Fear not though dear readers, as none of it may matter now that QE2 has been set forth. Economists will likely discount any poor news tomorrow as a result, and so good news can only be supportive to the rally already begun two months ago on the shoulders of QE2 and Republican Congressional victory. Thus, we see little risk heading into Friday's release.

Unemployment Insurance Claims

Weekly Jobless Claims were reported Thursday for the week ended October 30, and as we noted earlier in our premarket report, claims spiked back up above the 450K mark. At 457K, the news soured market hopes, lifted last week by the report noting claims had fallen to 437K (revised from 434K). Economists were looking for 443K this time around, but these weekly forecasts are usually useless, and we recommend you ignore them.

The four-week moving average for the weekly claims figure helps us find truer direction. This week's check on the average shows it increased by 2,000, to 456K. The insured unemployment rate, for the period ended October 23rd, dipped a tenth of a point to 3.4%. Some 42K less folks were receiving benefits as of the 23rd, but 4.34 million still were. Do not get too excited by the change in this count, as it leaves out more than two-thirds of the overall unemployed pool, which in September numbered 14.8 million. Furthermore, this excludes the "underemployed," or those folks working part-time jobs who would rather be working full-time, and also the disenchanted, who have given up hope altogether.

Not much changed in September or October as far as the weekly jobless numbers run, and so we cannot really look forward to much positive change in the Employment Report. Still, we can read modest positive into the outlook, given the declining number of insured unemployed. Keep in mind though, that laborers may simply be moving into part-time work, which would not change underemployment, nor would it impact consumer spending in a significant enough manner.

We regularly like to pass on the following data for your informational purposes and individual use:

The highest insured unemployment rates in the week ending Oct. 16 were in Puerto Rico (5.8 percent), Alaska (5.0), California (4.1), Oregon (4.1), Pennsylvania (4.1), New Jersey (3.9), Nevada (3.7), Connecticut (3.6), Wisconsin (3.6), Arkansas (3.5), and South Carolina (3.5).

The largest increases in initial claims for the week ending Oct. 23 were in California (+3,755), Illinois (+3,710), Pennsylvania (+2,256), Georgia (+1,593), and Michigan (+1,480), while the largest decreases were in Kentucky (-1,699), Florida (-1,615), Puerto Rico (-1,153), Indiana (-1,095), and Alabama (-1,087).

Monster Employment Index (MEI)

Monster World Wide (NYSE: MWW) reported on online job demand Thursday morning, and the trend matched the message offered by several other data points recently. It was that same old "bouncing around the bottom," as the October MEI fell two points, to a reading of 136. The MEI sat at 136 as recently as August, but had run to as high as 141 in June. Though the reading slipped against September, it was still worlds apart from the environment that existed last year, when it stood at 120. The MEI reached its 12-month low of 114 in January of this year.

What does this all mean? Generally, it says the number of available positions found via online databases has slipped some, though not much. We would prefer to see more jobs available of course, but this data alone does not threaten new recession or higher unemployment. Neither does it offer hope for much improvement in the labor market. Remember, however, that employment is a lagging indicator. Though this time around, it is an anchor to economic recovery, causing significant drag and keeping V-shaped recovery from the probability equation completely. It is, therefore, acting as a leading indicator or obstacle.

During October, online job availability rose in 10 of the Index's 20 industry sectors and in eight of the 23 occupational categories monitored by Monster. That means it did not rise in the other 10 sectors and other 15 occupational categories. In fact, it may very well have fallen in those other sectors.

Monster reports that job demand improved in trade and related sectors. The most notable gains came in transportation and warehousing, as that business showed growth in job demand to its highest level of the year. This is probably a beneficiary of soft dollar policy and rising export demand.

The report indicates that online recruitment activity expanded for both the wholesale trade and retail trade sectors, and Monster notes that other consumer-driven groups, like accommodation and food services and arts, entertainment, and recreation, were relatively stable over the longer term.

It seems Monster sees or is trying to portray a better consumer mood and activity than we've generally seen represented in data, excluding today's Chain Store Sales which we've yet to review. It's common knowledge and general consensus that economic growth should persist, excluding the Iran event (which sure seems likely to occur before long). What we cannot read from here is whether solid traction is available below the mud we currently trudge through.

Monster reported,

Among occupations, year-over-year demand trends moved upward for legal and computer-related professionals, as exhibited by the annual growth in the broader information; and finance and insurance industries. Online job demand was relatively tempered for most other white-collar occupations.

I can see why legal opportunities have increased, given all the lawsuits filed against debt burdened Americans who cannot manage to pay their bills anymore. It is a shame how much pressure intensifies upon people already knocked to their knees, and the vipers and crows will find their true justice some other day for their hard-balling poor folks. I get the jobs in legal, but in finance? Really? Maybe corporate finance, but we have not seen any change in capital markets opportunities as yet.

Arizona recorded the highest annual increase in job opportunities as far as states go (boy could that real estate market use it too), while Portland and Boston looked hot for metropolitan regions. Washington D.C. was the only city to record an annual decrease in job opportunities. Hey, we thought all those House seats were simply turned over to new representatives. Bad news, Charlie. Maybe they fired the guy who sweeps discrepancies under the rug. All in all, only 13 of the 28 metro markets measured saw increased job opportunities in October. State wise, the most job opportunities per capita existed in: Delaware, Alaska, Arizona, Vermont, Montana, Connecticut, Maryland, Rhode Island, Wyoming, and Virginia.

Challenger's Job-Cuts Report

Job cuts occur even when the economy is growing, and so this report is not likely to help much in forecasting labor market gains. However, it does offer some insight and even reason to cheer. In its latest report, Challenger noted October announced layoffs of 37,986. That compared with September's 37,151. More importantly, employers have declared 62% less layoffs this year-to-date, versus the comparable period from a year ago.

The most cuts last month came in the entertainment and leisure sector, as one should expect. Boardwalks are not as busy along the Northeast Coastline once Labor Day passes, and local amusement parks also see less traffic once school starts. Unfortunately, government and non-profit jobs have been going by the way side, and that continued last month (-4,749 cuts). This was the lowest such count since January though, but given stresses remaining on state and municipalities, and the dearth of coins for tin cans, this group should continue to struggle. Still, the pace of these cuts has improved, so perhaps the discrepancy sweeper can keep his job after all.

What we can take from all this is that perhaps we have hit rock bottom, or at least a safe plateau, as far as jobs go. We are operating at a point where few firings will occur barring new catalyst against economic activity. In other words, the bleeding has stopped, though partly because we almost ran out of blood.

ADP Private Employment Report

ADP's monthly data point comes closest to representing the change depicted in the following day's Labor Department report. ADP reported its estimate for private nonfarm payrolls for the month of October Wednesday, and the news was moderately positive. According to ADP, private sector jobs likely increased on net by 43K in October. At first blush, that is not exciting news, but September's data showed a decline of 2K jobs, and that was revised from a drop of 39K.

It is not as if the trend in jobs has shown steady rise though. In fact, since the job market first showed improvement in February, this monthly report has offered readings ranging from a -2K to +65K. October's mark sits just off the average change since February, which is +34K.

In Conclusion

Given that the Labor Department report will finally be rid of the effect of the shedding of census workers and related large public sector cuts, we are almost guaranteed to see an increase in jobs Friday. In fact, economists forecast nonfarm payrolls increased by 60K last month, based on Bloomberg's survey. Economists' forecasts range from -2K to +97K, so just about nobody is looking for a dip in the labor market here. Unemployment is forecast to sit at 9.6%. There is no forecast for the Underemployment Rate, but we remind you that it deteriorated in September, to 17.1%, from 16.7% in August. We think there is a good chance it will moderate a bit here. Thus, The Greek would be a buyer on any weakness that might come on fear of the Employment Report.

Disclosure: No positions