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  • Thoughts On The Employment Report ...
    The Feb. NFP and private payrolls print was more in-line with our estimates than the consensus. NFP came in at 227K versus our 217K and the 210K consensus. Private sector added 233K jobs versus our 235K estimate and the 225K consensus.

    A few things stood out in the report. Within the private sector, while professional and business services added 82K jobs in Feb., more than half of those, or 45K, were temporary positions. We touched on this in our March 5th post. What makes this figure even more interesting is that in Feb. '11 only 28% jobs added in this sector were temporary. Historically, increase in temps has been a leading indicator of recoveries or downturns. Whether or not they are indicating an upcoming downturn during the next 6-12 months remains to be seen. They certainly do indicate employers' hesitancy in making that 'commitment' and adding more full-time employees.

    The less Y/Y decline in government jobs wasn't surprising, given what we had noticed in the Challenger report, however, we had expected more than a 6K decline. Then again, it is an election year.

    Hiring in construction actually declined by 13K, which was surprising to us given the warm winter that we've had this year. The same thing can be said of the 7.4K jobs lost in the retail trade sector.

    With these good jobs numbers, the unemployment rate remained at 8.3%, in-line with the consensus. We don't pay much attention to this figure as it depends on the labor force and participation rate, which do change. Basically the base used to come up with the official unemployment rate is questionable. This rate remained unchanged because the participation rate increased by 20bps from Jan., after having decreased steadily from 64.2% in Feb. '11 to 63.7% in Jan., which of course helped make the decline in unemployment rate look so attractive. The U-6 unemployment rate, in our opinion, is a better measure to look at. It declined by 20bps to 14.9%. This level is still very high.

    In addition, the average time that people have been unemployed remained very high, 40 weeks. Although this figure has declined from 40.9 weeks in Nov. of last year, it is still well above the Feb. '11 36.7 weeks. Here's another figure that remains alarming: 42.6% of the unemployed have been without jobs for more than 27 weeks, or approx. 6 months. These numbers aren't very impressive given that we are in the third year of recovery from the 'Great Recession'.

    Lastly, average weekly hours remained at 34.5 hours, unchanged from Jan. And the hourly earnings change of a mere 0.1% was only half of the 0.2% that the market expected. Average weekly earnings went up by only 0.13%. With lack of much wage growth and latest surge in energy prices, next week's CPI and PPI numbers become even more important, as we mentioned in our last post.

    Mar 09 10:17 AM | Link | Comment!
  • Friday's Employment Report ...
    Regarding Friday's employment numbers, we think the warm winter likely had a positive impact, which will be diminished during the next few months. In addition, the impact of higher energy costs hasn't yet been realized by many companies and therefore is likely not yet visible in the Feb. figures. All of this, combined with a slight uptick in hiring within the public sector, we believe will result in NFP in-line or better than the 210K estimate. We think the number will be around 217K.

    As usual, the private figure will be higher. Wednesday's ADP provided some color regarding that. Historically of course, ADP and BLS private payroll numbers have been very highly correlated. Although they both move in the same direction more than 95% of the time, the m/m changes can vary significantly. For example, during the last 12 months, m/m change in BLS private NFP has ranged from being 168K less to 96K more than m/m change in ADP. The BLS m/m change has come in less than the change in ADP in 5 of the last 6 months. But again, given what we discussed earlier, we think growth in BLS private payrolls will be in-line with or slightly better than the ADP growth released Wednesday. We estimate private job growth of around 235K.

    If the employment numbers do beat the consensus, of course the market will react positively, but such reaction will be short lived. Even with what appears to be another successful round of kicking the Greek default-can down the road, we could see some profit taking at the end of Friday, limiting the upside for the day. While after the not-so impressive manufacturing data, the Fed and the press may have been hinting that QE3 will be launched soon, we believe the better than expected employment figures could put QE3 back on the shelf again, which would be another reason why many would do some profit taking.

    In addition, given the latest rise in energy prices, next week's CPI and PPI reports will be very important, and until they are released, uncertainty in the market will likely increase. Lastly, capacity utilization, which is also scheduled to be released next week, will provide more color on how to interpret Friday's employment numbers.

    Mar 09 1:57 AM | Link | Comment!
  • Thoughts On Challenger & Initial Claims Reports ...
    Challenger Job Cuts Report

    While the Challenger Feb. job cuts report appeared to be slightly better than the previous month's, a couple of things stood out which supported what we mentioned earlier this week.

    First, the YTD pace of job cuts is running at 18% more than last year's. 105,214 jobs have been cut this year compared to 89,221 same time last year. Another 25.6K job cuts in March, which is only 62% of job cuts announced in March '11, and this year's Q1 job cuts will be higher than last year's, keeping this recovery a modest one at best.

    Second, unlike last year, most of this year's cuts have been in the consumer products and transportation sectors, indicating the negative impact of higher oil prices which also drive gasoline prices higher. According to the report, "Both sectors are undoubtedly feeling the impact of rising fuel prices as heavy users of fuel, but also from their dependency on consumers, who are being forced to spend more on gasoline and less on the products and services provided by these firms." And believe it or not, Feb. figures would have looked worse were it not for the 'recovery' in government jobs (most states and local). Again, this recovery is a modest one at best.

    Initial Jobless Claims (3/3/12)

    Seasonally adjusted figure came in above expectations, 362K vs. 351K, which is not good news. It was also higher than the previous week's figure, which itself was revised higher by 3K to 354K. Although seasonally adjusted initial claims have been below 400K in 8 out of the last 9 weeks, they have not gone below 350K in 4 years! In addition, we note that the seasonal factor applied to the raw figure was the highest for the first week of March since 1995!

    For this reason, we believe it is also important to look at the raw, or non-seasonally adjusted number, which was approx. 365.8K, up 31K+ from the previous week.

    The, what we believe to be bad news, is partially offset by yesterday's inline ADP private payroll number of 216K. Then again, those ADP figures get revised more than even the government employment-related numbers.

    We will provide more thoughts on tomorrow's expected BLS employment figures later today.

    Mar 08 9:15 AM | Link | Comment!
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