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Few Silver Linings in Jobs Report By: Charles Payne

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Right now, the market is actually holding up better than expected. Let's not forget futures on the Dow were off more than 100 points after news from Hungary derailed a pre-open rally. I can't begin to say how disappointing the jobs report is today. Only 41,000 private sector jobs are substantially below consensus, and a million miles below whisper numbers. You could say average hourly earnings increase of $0.07, or 0.3%, to $22.57 is a plus and the average workweek edging up 0.1 hour to 34.2 hours are positives. Manufacturing climbing to 40,000 from 29,000 month to month along with the workweek increasing by 0.3 hour to 40.5 hours is also something to note.

This bump is bittersweet to say the very least. In late 1979, there were more than 12.0 million manufacturing jobs in America and now there is just a little more than 7.0 million, with over 2.0 million lost since the recession began.
I said a long time ago the best thing the Obama Administration could ask for is a surge in the unemployment rate because it would mean more people are seeking out jobs. People, after all, instinctively know when things are getting better. Last month, 286,000 returned to the sofa, giving up on job searches after one month of hope. I'm worried about the report, but even more concerned it will be used to justify even more government spending.
The return on investment has been abysmal. I can only hope the political will for that stuff fades and we get back to letting the free market work. We have given up on it for a year and a half and the report card is clear.

It's going to be interesting to see if investors dump stocks into the close, ahead of that report from Hungary being called the "skeleton report" because it's going to be honest and reveal everything. Other than that, I think the Street is adjusting, and looking ahead to the next jobs report. It could be a long wait.

The Pulse of the Market
By: Brian Sozzi, Equity Research Analyst

The market has pulled its hands out from its pockets to give a resounding thumbs down to the May non-farm payroll data. It's appropriate to expect the report, which fell shy of consensus forecasts, to get diced up like a clove of garlic in the weekend periodicals. However, unlike more recent jobs reports, the positive aspects to May were few and far between.

Interpretations of May

1. Headline number missed consensus, Goldman's 600K forecast (and I thought they had access to the data prior to its release...), and a crazy forecast of 750K.
2. Once Census jobs are unwound, where do these people go? If they go back into the labor force, the unemployment rate will go higher. If out of the labor force, they go on the unemployment rolls, thereby by producing below their capabilities to the U.S. economy.
3. Private sector employment of +41K in May was down sharply from +218K in April and the lowest since January. Removing government stimulus measures for a moment, would that +41K even exist?
4. Underemployment rate ticked down to 16.6% in May from 17.7% in April, but at this stage in the recovery shouldn't it be lower?
5. Inflation, though often told as contained, is outstripping meager wage growth. For the unemployed, inflation is eroding what savings are in the bank and the modest weekly unemployment check.
If you ask the President about the May jobs report, you would surmise that the actual number was +800K, with 799K from the private sector. In a speech today in Maryland post the data release, the President stated "these numbers do mean we are moving in the right direction." Since when does a direction that is lower from the prior month portend happy economic tidings in the future? By lower, I am zeroing in on the private sector employment component, the backbone of our country, and which declined from April. Census jobs will begin to peter out in June, leaving the market to contend with reality. That reality (and I think it's getting priced in today) is a slow economic recovery that was not priced into risk assets. If a slow economic recovery was priced into the market, the pullback that began in late April wouldn't be unfolding in front of our eyes, and the S&P 500 wouldn't be trading on a 13.5x forward earnings multiple, some seven points below the historical average.

The lone positive take away from the report, if you could coin it as such, is that the Federal Reserve is unlikely to move on interest rates anytime soon. Charles mentioned 2011 as the point when rates may rise, and that certainly appears to be an on-the-money call. The Fed meets on June 22-23, expect very minimal change in the tone of the report despite the grumblings from inflation hawks in the voting mix. That said, do rates staying low matter at the moment? The market is having risk readjusted on potential future events, such as the EU debt drama spreading (see news on Hungary today) and a double-dip in the U.S., rather than the realization that low rates are in the now and can foster healthy bank earnings and borrowing by corporations; these theoretical positives are being put on the back banner to the threat of the unknown.

The Worst Half-Million Job Gain You'll Ever See
By: David Urani, Research Analyst

This morning's employment report was an interesting case of a 431,000 job gain being mostly a poor result. The main point to take from the report is that the federal government added more than 400,000 jobs during the month for the Census. Not only are the Census job gains temporary (about two months), but they are also paid for by the taxpayer. Removing the government from the equation, the private sector only gained 41,000 jobs, and that is simply not good enough.

On one hand, these days it is easy to dismiss much of the data as being unreliable given that seasonal adjustments have massive margins of error. Nevertheless, looking at the overall trend recently, we can deduce that we have hit a patch of stagnation. In actuality, due to population growth the private sector needs to add roughly 150,000 jobs per month to be considered a "gain." So then, even if seasonal adjustments were to understate the job gains, we could still say that on balance private sector unemployment is not getting any better.

What is quite staggering is the long duration people have been unemployed. Almost 7 million people have been unemployed for more than 26 weeks. Despite the unemployment rate being more or less comparable to that of the 1980's recession, this time around people were fired more quickly (it took a few years to reach peak unemployment in the 1980's) and they are staying unemployed.
Manufacturing and construction continue to be prime concerns for the job market. While the services sector is holding its own, blue collar workers are still having a hard time. Manufacturing has finally begun to show signs of life over the past few months, perhaps owing to the stimulus bill. However, manufacturing jobs are historically at rock bottom levels (although shifts in the economy and outsourcing have much to do with it as well over the years). Meanwhile, with the homebuyers' tax credit having run out in April and office vacancies still far too high, homebuilders and other developers are reluctant to build anything new. Construction employment has continued to drop into levels last seen in the mid-1990's.
There Is Enough Blame To Go Around
By: David Silver, Research Analyst

Reading all of this stuff about BP and the oil spill has really gotten my blood boiling. I am not saying BP is without blame, I mean they did have an oil rig blow up and sink and then caused thousands of gallons of oil to spill into the Gulf. However, they aren't the only ones that deserve some of the blame. Oil companies are drilling below more than a mile of water and then go another several thousand feet into the Earth's crust to get to the black gold. The pictures of animals covered in oil and the images and videos of beaches along the Louisiana coast doused in a brown liquid are heart wrenching, but I keep asking if maybe some of this damage could have been avoided.

I was in New Orleans when Hurricane Katrina hit (I actually drove out only a few hours before the storm hit), and following the carnage and chaos that was the aftermath of the levees breaking, people from all over the state of Louisiana wanted to try to prevent something like that from ever happening again. Another pivotal issue in parishes along the coast is the erosion of the wetlands. A square foot of wetlands is absorbed by the Gulf of Mexico every hour, and many feel that both problems could be solved by building barrier islands. The EPA, Army Corp. of Engineers, and the federal government have repeatedly denied the State's efforts to build barrier islands to (1) help lessen storm surges; (2) prevent erosion along the coast; and (3) in this case, prevent at least some of the oil from reaching the shore.

I still have ties to the city of New Orleans and through some Tulane alumni, a local businessman raised more than $3 million to purchase sand, stone, and other debris, got a barge donated, and was willing to build his own version of a barrier island in front of the area that has the densest population of wildlife. The EPA and Coast Guard threatened prison time if the barge left where it was docked. Isn't this the type of attitude that should be applauded? BP tried to clog the well with golf balls and pieces of tire, all this guy wanted to do was put rocks, stone, and sludge dredged up from the mouth of the Mississippi River in the Gulf to form a barrier.

Shares of BP have lost nearly one third of their value since this oil spill began, and people in and out of the government have criticized how the company has handled it. My response to that would be, well, could the government do any better? If so, why haven't they helped BP to fix this problem? Other oil companies, and some of the smartest minds in our country have been trying to figure out the problem for more than 45 days now, but the government expects to be able to solve it? Not going to hold my breath waiting for the government to come to save the day.

Color on Oil
By: Conley Turner, Research Analyst

After demonstrating some early morning strength, the price of oil declined sharply after the release of the jobs data. Market participants interpreted the data as throwing cold water on the prospects of any near-term robust rebound in the domestic economy. It follows that the demand for oil will be negatively impacted due to limited non-government economic activity.

As evidenced by the report, the employment tallies in the private sector continue to be anemic and this is casting a shadow on the entire argument of a strong economic upturn. Recent government data has actually showed that the demand for fuel has been rising though not enough to cause a major drawdown of existing supplies.

Improving Semiconductor Outlook
By Carlos Guillen, Research Analyst

It is becoming clear that strong demand for PCs and handheld devices will certainly generate great opportunities for the semiconductor industry in 2010. As I have already stated before, I am very optimistic that the semiconductor industry will post yearly revenues that will come in much better than many expect. Strong demand for both PCs and mobile-phone devices has held up well and will likely continue to drive strong growth in semiconductor sales. As it stands, PCs and handhelds drive more than 60% of semiconductor industry demand, and unit growth of PCs, in particular, is expected to be quite strong in 2010.

It is also compelling to see that market research firm Gartner once again increased its 2010 worldwide semiconductor revenue forecast. Now the firm expects to see revenue reach $290.0 billion, up 27.1% from revenue of $228.0 billion reached in 2009. This forecast was actually encouragingly higher than Gartner's prior forecast calling for 19.9% revenue growth in 2010, which was provided in late February.

In general, all signs continue to indicate that semiconductor revenue will grow at a stronger than expected pace in 2010. Quite surprisingly, consumer electronics demand has been strong. Clearly, consumers see a strong product value equation in consumer electronics and are willing to spend despite a still shaky unemployment situation. It is also quite encouraging that most semiconductor companies continue to operate at lean inventory levels, and I believe that as end-demand continues its momentum, semiconductor companies will have to build up inventories to prevent shortages, providing more lift to revenues. Moreover, an improving economic backdrop and a corporate sector that is slowly but surely ramping up spending should also fuel semiconductor revenue growth this year. At the moment, I see minimal downside risk in terms of corporate spending and am much more optimistic about a sharp upturn in IT spending in the second half of 2010. OEMs and distributors will continue to improve their inventory positions, although cautiously, and end-demand will continue to modestly increase.

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Stocks: BP