You don't have to be an investor in the stock market long to have gone through the phenomenon of watching a company post what looks like great earnings only to watch the underlying share price move lower. Well, the jobs numbers were fantastic this morning and of course equity futures took off...then stopped. Stocks are going to open higher but what's weird is futures have mostly meandered after the initial spurt. That bothers me a lot. What the heck is going on? Well, I'm not sure but I've seen individual stocks plunge on good news and rally on poor news so this kind of odd cause and effect isn't new. Still, I think the Dow should close at a new 52- week high today. I wouldn't say it's a red flag if that doesn't happen but it's a reason to squint one eye and just be aware. Also, the market has made a big move and has been in consolidation mode for some time so the rally gears are a little rusty.
Then there is the still the fact unemployment is still at 10.0%. I want to nitpick at the data from this morning even more but I can't. I can nitpick at something I heard on television this morning. Some big time Wall Street maven said unemployment always lags the recovery. Of course he's right; it's something everyone has said even President Obama. In the December newsletter out later this afternoon I address this notion because from a historic point of view this isn't the real deal. Somewhere along the way we have been hoodwinked and I think I know why. Here's an excerpt.
Preview of the December 2009 Newsletter
It's funny how we take things as gospel if they are said enough times, for instance the notion that unemployment is a lagging indicator. The idea recessions end but unemployment continues to rise hasn't always been true. In fact, historically the opposite has been the rule. Unemployment and the end of the recession for the longest time were practically simultaneous events. Nine recessions from 1948 to 1981 saw an average lag time between the end of a recession and the peak in unemployment of just 1.6 months. The last two recessions saw the lag time widen to an average of 17 months. It's hard for me to accept this as a quirk of happenstance but instead I believe somehow political pressure has played a role in time stamping the end of recessions much too soon. If you're the President this gives you the chance to take a victory lap and also have cover for real fiscal misery on Main Street.
We have a special 2010 newsletter offer available right now, contact your representative or email firstname.lastname@example.org.
So the economy only lost 11,000 jobs last month and the prior two periods saw an additional 159,000 jobs after revisions. This is great for the nation and should be great for the stock market, the way things should work.
More Employment Data
Today's jobs numbers was a very pleasant surprise and should have a lasting impact on equities. Earlier today the Department of Labor reported an unemployment rate of 10.0%, which decreased from the 10.2% reached in October and landed below the Street's estimate of 10.2%. Also encouraging was that non-farm payroll employment decreased by only 11 thousand, a smaller decline than the Street's estimate calling for 125 thousand drop. This non-farm payroll drop came as a great surprise since just two days ago the ADP non-farm jobs number showed a loss of 169 thousand jobs. This discrepancy will need to be looked at in further detail. Nonetheless, today's unemployment figures are very encouraging and bring a sigh of relief.
Even when looking at the darker side of the story, that is including discouraged workers and those underemployed, the number still looks to be improving. If we include in the unemployment rate calculation "Part time for economic reasons" of 9.2 million and "Marginally attached to the labor force" of 2.3 million, we calculate an unemployment rate of 17.2%, which also decreased from last month's figure of 17.5%.
Some of the industries that continued to experience job losses were construction (-27K), manufacturing (-41K), and information (-17K). Losses in these industries were offset by job gains in temporary help services (+52K) and health care (+21K).
Working hours also improved during November with the average workweek for production and nonsupervisory workers on private nonfarm payrolls increasing by 0.2 hour to 33.2 hours. Moreover, the manufacturing workweek increased by 0.3 hours to 40.4 hours and factory overtime rose by 0.1 hour to 3.4 hours. While these changes are small, they are breaking a persistent down trend.
While the unemployment improvement is encouraging, we still cannot neglect the fact that the unemployment level is still very high (and the economy still lost jobs during the month), and this will likely continue to have an adverse effect on consumer spending. The consumer continues to struggle, paying down debt and limiting purchases to essentials. As it stands, retail same-store-sales were generally down in November, and even this holiday shopping season is expected to be down one percent according to the National Retail Federation.
Employment by Sector
By sector, the trends got pretty interesting. Generally, construction, manufacturing, transportation and all of the usual suspects continued on it downtrend. There is still significant weakness in building and production, and most other classes of jobs for that matter. However there were pockets of significant strength, particularly in the services sector. There was a staggering 87,000 job increase in administrative and support services. In addition, there was a wave of temp hiring, with an increase of 52,000 temp jobs. Generally, it was the workers such as secretaries, janitors, security guards, trash haulers, and maintenance that saw the most gains during the month. And, as usual, the health care sector continued to grow, with more than 20,000 jobs being added there.
Judging by the action in the final hour of trading, the jobs report this morning should have been a doozie. However, after the report that showed the economy only lost 11,000 jobs, the futures moved much higher, and with good reason. The services industry added 58,000 jobs while the government only added 7,000 jobs. Look, I don't consider myself a conspiracy theorist, but right when all the big wigs are in Washington D.C. for a jobs summit, all of a sudden the economy only loses 11,000 jobs. I wouldn't be surprised if someone from the summit says something about being successful. Another little interesting tidbit is that supposedly the ADP and the Bureau of Labor Statistics (BLS) are looking at the same economy, but by the following chart shows that the two have not been seeing eye to eye over the past year.
General Motors Moves For Changes At The Top (and Middle)
GM Chairman (and newly appointed interim CEO) Ed Whitacre announced some sweeping changes to the management framework at the giant automaker. Historically, changes like this would have come over two to three months, but Mr. Whitacre has announced that many new, younger managers will be promoted into more prominent roles. Somehow, vice chairman Robert Lutz will be assigned a new job too. Remember in the days before GM filed for bankruptcy and Mr. Lutz sold basically all his stock, saying he was leaving the Company? Turns out that was a big farce, I wonder if the SEC is investigating insider information on that trade. And now, a 30 year veteran of the auto industry is going to be in charge of sales and marketing? Wasn't he part of the Company that used to have basically a 50% share of the U.S. market and now has seen it dwindle down to below 20%? Isn't General Motors the company that came out with Pontiac Aztec, possibly the ugliest car of all time? Also, if you can name an uglier car, please, email me at David.Silver@wstreet.com, I am interested what could have surpassed that feat of genius (insert heavy sarcasm here).