By Jonathan Chen
The September Non-farm Payroll report was released earlier this morning and while it was better than expected, the closer you get to it, the uglier it gets.
The report from the Bureau of Labor Statistics showed that 103,000 jobs were created during the month, significantly higher than the estimates of 60,000 Non-farm Payrolls being added. The unemployment rate remained at 9.1%, and average hourly earnings rose 0.2%.
The gains were helped by the return of the 45,000 striking Verizon (NYSE:VZ) jobs, with the private sector creating 137,000 jobs during the month. The public sector lost 34,000 jobs.
The average hourly work week was 34.3 hours versus estimates of 34.2 hours, edging up 0.1 hour, after falling 0.1 hour in August. Breaking it down further, the manufacturing workweek edged down by 0.1 hour in September to 40.2 hours, and the average workweek for "production and non-supervisory employees on private non-farm payrolls edged up by 0.1 hour to 33.6 hours in September."
In September, average hourly earnings for all employees on private non-farm payrolls increased by 4 cents, or 0.2%, to $23.12, after falling 4 cents in August. Over the past 12 months, average hourly earnings have rose 1.9%, below the rate of inflation.
There were also significant revisions to both July and August, with July seeing an additional 42,000 jobs, while August was revised from 0 to 57,000 jobs.
Despite this "Picasso" like painting, the closer you get to the report, the uglier it gets. The U-6 rate actually edged up, going from 16.2% to 16.5%. We still have significantly higher unemployment than the country can support, and we are generating nowhere close to the amount of jobs we need to cut the unemployment rate, much less keep up with population growth.
We need approximately 150,000 jobs created every month just to keep up with unemployment growth. According to the Bureau of Labor Statistics, "Since April, payroll employment has increased by an average of 72,000 per month, compared with an average of 161,000 for the prior seven months." So, for the majority of the year, we are well below what we need to cut down on unemployment, and make a dent in the long-term unemployed number. To see it jump by 0.3% from August to September is a very troubling sight, and almost as ugly as a Monet. We are currently at stall speed, with GDP growth hovering around 1%. The country has been used to seeing GDP growth of around 3%, so this is significantly lower than the country is used to and needs to see to remain competitive.
To get back to where we were before the Great Recession, Depression, or whatever you want to call it, the U.S. economy would need to add 261,200 jobs per month by the end of Obama's second term, provided he lasts that long. With current trends, and the fact that we have come nowhere close to that number since President Obama took over, that does not seem likely.
The country is upset, and rightfully so. We have started to see Occupy Wall Street really gain traction, and what started as a protest against Wall Street has evolved into a protest against the economic and societal issues we are currently facing. Teenage unemployment is still atrocious, at 24.6%. Veterans of the Iraq and Afghanistan wars are facing an 11.7% unemployment rate. They are rightfully frustrated.
Unless the situation gets drastically better sooner rather than later, traders and investors will see this as a Monet rather than a Picasso.
Don't stand so close.
Traders who believe that the economy will get better sooner rather than later might want to consider the following trades:
- A stronger economy could be beneficial for retail, with names like Target (NYSE:TGT), Macy's (NYSE:M) and J.C. Penney (NYSE:JCP) benefiting.
Traders who believe that the economy will take much longer to return to the levels it was prior to the financial crisis may consider alternate positions:
- Dollar stores will benefit, as consumers trade down. Consider names like Dollar General (NYSE:DG), Dollar Tree (NASDAQ:DLTR) and Family Dollar (NYSE:FDO).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.