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It Is All About Jobs

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by: Lawrence Fuller
Summary

The monthly jobs report is not an accurate portrayal of labor market health.

The weekly claims numbers tell a different story.

The unemployment rate is double what the Bureau of Labor Statistics estimates.

The labor market continues to deteriorate, as the economy is withering on the vine.

There are two sets of jobs numbers out there. One shows an economy that has already hit bottom and is starting to rapidly recover. The other shows a continued deterioration in economic conditions. Relying on the right set of numbers is critical in making an accurate call about the direction of the overall economy. It should also have some bearing on the direction of financial markets, provided the two reconnect at some point in the future.

The Bureau of Labor Statistics tells us that we have recovered 7.5 million jobs over the past two months and that the unemployment rate has fallen to 11.1%. Considering how dire things were in April when the economy lost more than 20 million jobs, these are phenomenal results. The problem is that the BLS is providing us with a backward-looking estimate of job creation that has been horribly inaccurate at turning points in the economy in the past.

A more accurate and real-time assessment of the labor market can be found in the weekly initial unemployment claims report, but even that has been misconstrued by the bullish consensus. While it is true that initial unemployment claims have been gradually declining each week to what was 1.3 million for the week ending July 4, this figure only accounts for state benefits. When we include the workers filing claims under Pandemic Unemployment Assistance (PUA), which is the federal program for the self-employed, independent contractors and gig workers who can't quality for regular benefits, the numbers are rising. The number of claims filed last week under the PUA rose to 1,038,905, so the total number of initial claims has risen over the past four weeks.

Source: MarketWatch

It was also reported yesterday that continuing claims fell 700,000 to 18.1 million, but that is a misrepresentation as well. The number of workers continuing to file claims under the PUA program rose to approximately 14.4 million, bringing the total filing continuing claims to 32.5 million.

The unemployment rate is not 11%. When 32.5 million workers are receiving unemployment benefits out of a workforce of approximately 165 million, the unemployment rate is closer to 20%! The difference between 11% and 20% is enormous, and it has serious implications for the rate of economic growth and corporate profits. The consensus on Wall Street is using the lower unemployment rate to forecast a more rapid rate of economic recovery and return to 2019 corporate profit levels in 2021. An unemployment rate of 20% does not support the bullish narrative.

Additionally, the situation is getting worse. As workers are being rehired for low-paying service sector jobs, higher-paying positions are starting to be shed in large numbers. Wells Fargo (NYSE:WFC) is expected to eliminate tens of thousands of jobs before year end to dramatically cut costs. Harley-Davidson (NYSE:HOG) announced yesterday that it would be eliminating 700 jobs as part of its restructuring. United Airlines (NASDAQ:UAL) is expected to lay off as many as 36,000 by October. Meanwhile, a fiscal cliff approaches at the end of the month when enhanced unemployment benefits are scheduled to end.

Stimulus may help keep the economy and markets afloat in the short term, but without steady job creation and income growth, an economy that is dependent on consumption will wither on the vine.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Lawrence Fuller is the Managing Director of Fuller Asset Management, a Registered Investment Adviser. This post is for informational purposes only. There are risks involved with investing including loss of principal. Lawrence Fuller makes no explicit or implicit guarantee with respect to performance or the outcome of any investment or projections made by him or Fuller Asset Management. There is no guarantee that the goals of the strategies discussed by will be met. Information or opinions expressed may change without notice, and should not be considered recommendations to buy or sell any particular security.