Main Street Is Not Well

Includes: KFY, MAN, MWW, RHI
by: Markos Kaminis

Last Thursday, when the Weekly Jobless Claims data was reported, I was stunned by one major television network's world news program's reporting of job creation. They pointed to the relatively low new unemployment claim filings as a sign that jobs were being created. It was flawed because new layoffs are not perfectly tied to new hiring.

I find it karmic that just one day later, the monthly Employment Situation Report showed soft net job additions for the month of March. Indeed, the truth is, Main Street is not well. As a result, stocks generally, and the stocks of employment services firms Robert Half (NYSE: RHI), Korn Ferry (NYSE: KFY), Manpower (NYSE: MAN) and Monster World Wide (NYSE: MWW), continued their slide from last week again Monday.

Last week offered a slew of employment data that provide us an opportunity to take good measure of the labor market. Most notably of all data points was of course the Employment Situation Report. March's publishing showed that nonfarm private payrolls rose by 120,000 jobs on net, which was about half the prior three months' average of +246K. Most importantly, that's not really enough to keep the unemployment rate improving. It did improve, though, in March by a tenth of a percentage point, to 8.2%.

However, that gain came on the unfortunate loss of 333K people from the labor force. You can fall out of the labor force for many reasons, like retirement for instance. However, I expect too many of America's long-term unemployed have exhausted their extended weekly unemployment benefits, and are increasingly dropping off the radar.

Some 5.3 million Americans have been unemployed for more than 27 weeks, representing 42.5% of the total unemployed pool. The number of Americans working part-time for economic reasons, meaning they would prefer full-time jobs, decreased by 447K in March. I do not believe these part-timers got lucky and found full-time work; rather, I expect they are on the leading edge of layoffs and portend trouble for the economy. The 34,000 job shedding in the retail trade would seem to say the same thing.

The latest reporting of announced corporate layoffs by Challenger, Gray & Christmas indicated something else on the headline. According to the firm, planned layoffs dropped 27% in March, to a 10-month low of 37,880. The thing is, though, that the most important employers in America are small businesses; and their activities are harder to capture. Small business confidence has been on the rise in recent months, but has remained at historically low levels. The National Federation of Independent Business measure of the group is due on April 10.

March was also the lowest of the three months of the first quarter in terms of layoff announcements. The quarter itself, however, marked a 9.4% increase in announced firings versus the prior year period. Year-to-date data indicates the most weakness in consumer products, transportation and now call centers, which are clearly economically sensitive sectors.

T-Mobile contributed a bunch to March call center contribution, as did Verizon Wireless (NYSE: VZ), Wells Fargo (NYSE: WFC) and QVC. An interesting contrast to 2011 and indicated by both reports, the public sector was less of a factor in March. Still, Challenger warns that significant cuts are likely at both the federal and local government levels this year.

In conclusion, I want to stress and reiterate that I believe the economic situation will deteriorate near-term, rather than improve as many believe. This forecast is what drives my jobs view, and what keeps me attuned to leading indicators. Recent economic data, including several reports from China and Europe, offer good reason for concern for the global economy to which we are tied. Indeed, recent expansionary efforts from China also point to an internal understanding of an important disruption.

Government action, opening up markets for foreign investment, helped spur some excitement around Chinese firms of late, but the action was likely the result of trouble within. U.S. data around manufacturing, consumers and housing have all offered a suspect odor, and the stench of Europe threatens as well. Thus, I continue to favor investments with a long-term flavor, including the recently weakened gold as a hedge against trouble.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.