The final Jobs numbers for 2012 failed to bring the Wow! factor that was begging to become a trend. On the other hand, it did not show a deterioration of the overall employment picture, so at least that brought a sigh of relief to many. The reality, however, is that there are still many out there that need work, so there is much, much room for improvement.
According to the latest data from the Department of Labor, the unemployment rate in December clocked in at 7.8 percent, landing above the Street's consensus of 7.7 percent but remaining flat from the 7.8 percent posted for the prior month. The household survey showed that those employed climbed by 28,000, but those unemployed increased much more, by 164,000. A bit more encouraging, however, was that those not in the labor force declined by 16,000, all while the labor force absorbed an additional 176,000 individuals that resulted from population growth. The essence, however, was not as favorable as we would have liked since the rate of growth of those unemployed was much greater than those employed. While the unemployment rate appeared flat at 7.8, it really was not; this was the illusion resulting from rounding effects. A more precise view of the numbers shows that the unemployment rate in December was 7.849 percent, increasing from the 7.753 percent for the prior month.
We should note that this month the number of those employed did not benefit from an increment in part-timers; in fact, the number of individuals working part-time for economic reasons actually declined by 220,000. However, those "Marginally attached to the labor force" did increase by 109,000, so if we include "Part time for economic reasons" of 7.9 million and the "Marginally attached to the labor force" of 2.6 million to the unemployed number, we calculate an unemployment rate of 14.38 percent, which was fairly flat from the 14.37 percent posted for the prior month.
Perhaps the more favorable aspect of the employment report was that non-farm payroll employment in December (derived from the establishment survey) increased by more than expected. The report showed that the increase in non-farm payrolls was 155,000 while the Street's consensus called for a gain of 150,000. The non-farm private payroll gains were 168,000, also beating economists' forecast of 145,000. While the better than expected result was well received, there was stronger hope for an even larger gain given that the ADP numbers presented this past Thursday were much stronger that forecasted. According to ADP, 225,000 private sector jobs were gained during December, above the Street's consensus estimate calling for a gain of 140,000 jobs and significantly above the 148,000 added jobs in the prior month, which itself was revised higher from 118,000. We should note that during 2012, the average monthly gain in non-farm employment was 153,000, which remain unchanged from the respective average achieved in 2011, but was still above the 130,000 needed to keep the unemployment situation constant.
In all, the jobs data posted for December was rather neutral and has not brought much enthusiasm to investors that were hoping for more. However, taking a birds' eye view of the data, the trend is favorable. In 2009, 2010, 2011, and 2012 the unemployment rate was 9.9, 9.3, 8.5, and 7.8 percent, respectively; and non-farm jobs have gone from losing 422,000 per month in 2009 to gaining 86,000, 153,000, and 153,000 per month in each year after. So if the trend persists, the long term can certainly look more encouraging.
Federal Spending Shift to End Gold's Run?
The theme so far this new year is government debt, and at $16.4 trillion we all know how obscene it is. The question is though, which way is the debt going to go from here? Caught in the middle of this is gold, which over the past few years has really thrived on our nation's irresponsibility with its finances, but traded relatively tamely in 2012 (up approximately 3%). The next few months may really set the stage for the long term direction of US deficits and gold as the issue of spending is confronted seriously again after a long stretch of emergency spending and quantitative easing post-recession.
Of course, we got that big decision on Fiscal Cliff taxes earlier this week that stopped us from encountering a crippling tax increase on everybody. But like it or not, the Fiscal Cliff would have really cut down on the deficits. As it stands, the tax deal that passed on Tuesday is actually projected to increase the federal debt by $4 trillion over 10 years and that of course goes opposite of the entire reason Congress put the Fiscal Cliff there in the first place; to fix the deficit.
But gold and the dollar thus far have seemed undecided about the Fiscal Cliff deal, and that's because the budget fight really isn't over yet. Spending cuts have been delayed for a couple of months, to be discussed later. And that's likely to coincide with the pending debt ceiling that we will hit late next month or early in March. It's quite a relief that we got the tax increases (for the non-rich, at least) out of the way, but will the government actually agree on spending cuts that finally put a dent in the Federal debt or will the can get kicked again?
And then there's the Federal Reserve, who has had the printing presses on turbo charge for years now along with rock bottom interest rates. Well, yesterday we got the latest FOMC minutes, which suggested there are 'several' members that would rather not see QE 4 (a.k.a. QEternity) continue through the end of 2013. Some members think it should stop now. Certainly, there's a strong chance that Fed policy maxed out with QE 4, and will only become tighter from here. Following that news from the fed, gold has sunk approximately 3%.
Call me a hopeless optimist, but I'm seeing a scenario here where the government, from the White House, to Congress, to the Fed, may well become more hawkish on deficits and spending this year as we finally wind down stimulus to counteract what happened in 2008. And for the gold bugs out there, it may be time to consider whether the party is winding down after generally outperforming stocks significantly over the past several years. In the last five years, the Dow is approximately flat, while gold is up more than 80%.
Then again, this is the government we're talking about here.