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Unemployment: Glass Half Full or Half Empty?

|Includes: BAC, Citigroup Inc. (C), GS, JPM, PNC

Today's Jobs numbers came in just shy of consensus. The bad news is that jobs, especially full-time jobs, are slow in coming. The good news is that much of the job growth came from the private sector. According to the Nonfarm Payrolls report the economy added 162,000 jobs, 48,000 jobs were temporary census workers. Manufacturing added 17,000 jobs and construction added 15,000 jobs.

The so-called Household Survey indicated that the unemployment rate is 9.7%. However, the number remained high due to more displaced workers indicating they are now actively looking for work. The Household Survey (which accounts for small business job growth better than Nonfarm Payrolls) indicated job growth of 200,000 for March and approximately one million jobs for the first quarter. Unfortunately many of those jobs were part-time or lower wage jobs. This was evidenced by data indicating that average hourly earnings fell.

Part-time Jobs for economic reasons increased by 263,000. The real unemployment rate (which factors in underemployment came in at 16.9% and those unemployed for more than 27 weeks rose by over 400,000. These are records.

Once again, the CNBC crew and their guests were cherry-picking the positive aspects of the report. Well, not all of their guests. Pimco's Muhammed El-Erian made some insightful observations, such as there was much stimulus in these numbers and that the recession was not cyclical, but a balance sheet issue. Balance sheets were severely impaired and the will only be slowly repaired. Due to what all but the most ardent equity market bull are forecasting, household leverage is not going to return to levels seen during the prior decade any time soon.


Long Ford

Of all the experts interviewed today Mr. El-Erian was the most balanced. He acknowledged the positives, but expressed concerns about the negatives. This is where I stand. The economy is off the bottom and will likely stay off the bottom for now. The question is: How high do we go and how long will we take to get there? It appears that we will be in for a long recovery with economic activity and employment lower than what we have seen during the last two decades. Remember, it was only 20 or so years ago when economists were asking of 6.00% unemployment was full employment. Since then we have seen unemployment with 4.00% and 5.00% handles.

We achieved these stellar numbers during the two biggest post-war bubbles. However, because these bubbles lasted for a number of years and were relatively close together, many people (including man experts) came to believe that this was the new normal. Remember the great moderation. The reason economic data was so strong and recessions so mild and short-lived was that the Fed would inject more stimulus to halt the slide even though it had not taken much of its previous stimulus out of the economy. Even I was sucked in.

We should remember that the economy lost 15 million jobs during the recent recession. It will take years to replace many of these jobs. Due to productivity, outsourcing and lower levels of economic activity, some will never come back.

How are the markets reacting? Equity markers are closed, but S&P futures were up 36 points. The bond market, which is open until 12 noon EDT, is reacting much more modestly. With many bond market participants off, the yield of the 10-year treasury has approached 3.90%, but has not pushed through at the time of this publication. Next week's 3-year, 10-year and 30-year treasury auctions will be import gauges of what the fixed income market thinks of the recovery. I think the 3-year and 30-year auctions will be relatively soft, but the 10-year could be surprisingly strong.


What we saw today is a baby step forward, but a step forward none the less. However, the data was not strong enough to warrant a change in the Fed's language, never mind a change in policy, regardless of what the equity wonks say.


Disclosure: Long Ford, F