Cold Water Tossed On Jobs Report

Includes: AAPL, AGG, DIA, QQQ, SPY
by: Charles Payne

Boy, if one didn't realize any better it would seem as if the September jobs report came in below consensus or only showed moderate improvement from August. Alas neither was the case; there were nice upward revisions to July and August and the September headline sped past consensus. The way I am thinking about it, at least until the weekend when a slew of thoughts are likely to arise, is that there are strong negative undercurrents to any positive turn in economic data. They include:

* It's simply not enough. For example, in numerous places today the talking heads are saying the economy needs 200,000 jobs a month to move the economic needle. So, anything less than that will be viewed as a failure that fosters subpar growth.

* Any positive bias in the data will slowly remove the Fed from the mix as a booster to risk assets. The Fed has recently begun its Operation Twist program and has declared low interest rates until 2013. If we were to go down a path of stronger than expected data, surely the Fed would step back from its extraordinary action plan. The market wants instant gratification, not to have to wait for the first week in every month to know the trends in jobs are triggering stronger economic growth.

* Europe rules the newsroom roost, as David Urani explains below.

As an aside, perhaps the most interesting thing I read today was on Steve Jobs' impending biography. Apparently, the Apple (NASDAQ:AAPL) visionary was working on a biography so that his children could get to know him. I have no kids, but will be sure to drop calls to my family this weekend; sometimes being so engrossed day to day in the system of capitalism leads one to lose focus on what life is all about.

Who Cares About Employment, Remember Europe?

By: David Urani, Research Analyst

Later on into the day, any enthusiasm from this morning's employment report is fading; there were a number of ways to spin the result negatively. Fitch is giving us no help though, as it sent the market to the downside with a trio of actions. First it was the downgrade of Italy's debt rating to A+ from AA-. Fitch said: "The downgrade reflects the intensification of the eurozone crisis that constitutes a significant financial and economic shock which has weakened Italy's sovereign risk profile." It makes total sense, looking at it from Fitch's point of view, as it is looking very likely that the EU is entering a recession, and that is sure to reduce the country's growth and tax revenue generating ability. Then it was Spain, which was downgraded to AA- from AA+ for essentially the same reason.

To top it all off, Fitch says Portugal remains on outlook negative. And then Merkel crashed the party as well by saying that Eurobonds are the wrong way to go. Yes, one could have figured that any tangible economic data would be quickly trumped by more fears and rumors out of Europe. In a sense though the market is right, Europe really is still holding the key to world economic balance. And, below, you can see the intraday drop in the euro.

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Jobs Rate Stuck

By: Carlos Guillen, Research Analyst

The September jobs numbers were certainly encouraging at first glance; in fact, they have helped to bring a sigh of relief about a double-dip recession scenario. However, while the unemployment rate in itself did not get worse, it is still very high by any standards; with the continuous flow of negative economic data, a worse unemployment rate was certainly very likely. Moreover, the fact that the unemployment rate stayed flat demonstrated that the economic backdrop is not really improving.

Earlier on Friday, the Department of Labor reported an unemployment rate of 9.1% corresponding to September, which was unchanged from the 9.1% level reached in August and landed in line with the Streets 9.1% estimate. More encouraging, however, was that the nonfarm figure came in much better than expected.

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Nonfarm payroll was significantly above the Street's expectations, as it showed an increase of 103,000 jobs while the Street's consensus called for a gain of 60,000. This result also came in well above ADP's nonfarm jobs number posted on Wednesday that showed an increase of 91,000 jobs, which was also better than the Street's estimate calling for a gain of 45,000 jobs.

As it can be seen in the chart below, this month's result shows that jobs have been added to the economy for the last 12 months. While the increases are not exactly stellar, they are showing some light at the end of the tunnel. It should be noted that private sector jobs increased by 136,000 and were also higher than the Street's estimate of 83,000. However, a large part of this increase can be attributed to the Verizon (NYSE:VZ) strike, which expanded nonfarm employment by 45,000.

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The September employment Household Survey data was, ironically, encouraging. It was good in the sense that the employment level increased by 398,000, and it was also good because it implied that people felt a bit more confident and joined the labor force. In fact, the labor force (the sum of the employed and the unemployed) increased by 423,000, with those employed increasing as previously mentioned. The fact that the unemployment rate stayed constant is actually not bad since the market was able to absorb more people jumping in for work; the rate could have been worse.

Nonetheless, the unemployment rate appears to be stuck at an unacceptable level, and I estimate that the economy needs to add approximately 129,000 jobs per month (using data for the past ten years) in order to just satisfy population growth (Civilian Non-institutional Population); and more than that to bring the unemployment rate to normal (5%-6%) historic levels.