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Comments on July's upcoming employment figures

Unemployment figures for July will be released next week.  We believe the net jobs added figure (excl. government jobs) will be slightly below the 82.5K consensus.

This year's first half earnings were very good.  This was mainly due to - easier comparable first half of 2009 (1H '09), inventory replenishment after a state of paralysis in 1H '09, aggressive and certainly necessary cost cutting measures implemented within nearly every sector, and analysts' 'conservative' estimates and expectations.  However, as we mentioned last year, the second half of 2010 may be a different story.  The Y/Y comparison is not nearly as easy as it was in the first half.  In addition, revenue growth, if any, remains very disappointing.  Although some sectors reported stronger than expected revenue growth (Y/Y) and some companies have provided positive revenue guidance for Q3 or the entire 2010, strong revenue growth for most companies remains unlikely.  For this reason, we believe the majority of companies remained hesitant in increasing their headcount in July. 

Management teams' main objectives include impressing Wall Street.  The best way to do this is to beat Wall Street's earnings expectations and have impressive Y/Y bottom-line growth (knowing that an impressive top-line growth is not likely).  That is why we believe companies have not and will not increase their payroll significantly until at least 12 months down the road. 

Maybe our thoughts regarding the state of employment no longer being a lagging indicator were correct.  This topic was discussed again this weekend in an article on Reuters.  Just remember that the 'trickle-down' theory will work only when regular middle-income consumers, including the ones unemployed, can use their credit cards or may still have equity on their home, or can still borrow from their banks.  None of these is applicable to the current state of the economy.



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