Friday, February 01, 2013 - Jobs Report Friday

Jobs Report Friday

by Sinclair Noe

DOW + 149 = 14,009
SPX + 15 = 1513
NAS + 36 = 3179
10 YR YLD + .02 = 2.01%
OIL + .12 = 97.61
GOLD + 3.80 = 1668.60
SILV + .37 = 31.94

Today is a Jobs Report Friday. Total nonfarm payroll employment increased by 157,000 in January, and the unemployment rate inched higher to 7.9%. The headline number was below expectations, which had been running from 170,000 to 185,000 new jobs. However, employment figures for November and December were revised up sharply. November was revised from 161,000 to 247,000, a gain of 86,000; so it turns out that job growth immediately before the election was actually under-estimated; December was revised from 155,000 to 196,000, a gain of 41,000.

In January, job gains occurred in retail trade, construction, health care, and wholesale trade, while employment edged down in transportation and warehousing. Exactly what this pace of job growth means for the unemployment rate depends on whether many of the workers sitting on the sidelines decide to join, or rejoin, or can find a place in the labor force. Right now, labor force participation rates, the share of people of working age who are either working or looking for jobs, is hovering around 30-year lows. Only those who are actively looking for work are counted as unemployed, so if the labor force participation stays low, even modest job growth can cause the unemployment rate to fall quite a bit.

The decline in the labor force participation rate brought the unemployment rate down much faster than anyone would have thought. The aging of America accounts for a little bit of it, but you’d still expect that job searches would go up and participation would rise as opportunities are opening up. For the long-term unemployed, who now represent 40 percent of all jobless workers, the opportunities still seem few and far between. Millions have exhausted their unemployment benefits and many more will fall off the government’s system in the coming months , and once the fall off, they seem to disappear.

The BLS report shows the number of unemployed persons, at 12.3 million, was little changed in January. In January, the number of long-term unemployed (those jobless for 27 weeks or more) was about unchanged at 4.7 million and accounted for 38.1 percent of the unemployed. Both the employment-population ratio (58.6 percent) and the civilian labor force

participation rate (63.6 percent) were unchanged in January. The number of persons employed part time for economic reasons, at 8.0 million, changed little in January. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job. The alternate measure of unemployment, or U6, which includes under-utilized workers was unchanged at 14.4%. That means the number of people working part-time who want to work full-time and the people who want work but are no longer counted as looking for work; that number is now 21.4 million. 

In January, the average workweek for all employees on private nonfarm payrolls was unchanged at 34.4 hours. Average hourly earnings for all employees on private nonfarm payrolls rose by 4 cents to $23.78. Over the year, average hourly earnings have risen by 2.1 percent. 

State and local governments lost 129,000 jobs in 2009, 262,000 in 2010, and 239,000 in 2011. In 2012, state and local government employment declined by 32,000 jobs. In January 2013, state and local governments lost another 4,000 jobs. It appears most of the state and local government layoffs are over, however state and local government employment is still trending down slightly. Of course. the Federal government layoffs are ongoing with another 5,000 jobs lost in January.

With the November/December revisions, there were 200,000 new jobs, on average over the past three months.The new numbers are based on far more reliable — but slower to arrive — counts of the the number of workers for whom unemployment insurance premiums were paid. In 2012, employment growth averaged 181,000 per month. A month ago, we were told the average for the year was only 153,000, basically the same as in 2011. With the revisions, we are told that the 2011 average was really 175,000. At the end of last year, the official figures showed employment had risen 3.7 percent from the bottom in February 2010 to the end of 2012. Now that figure is 4.1 percent. A year from now we will get benchmark revisions for the last nine months of 2012. It is quite possible the 2012 annual average will then rise further, to more than 200,000.

The economy has added jobs for 28 straight months; just not fast enough. Since the downturn began in December 2007, the economy has had a net decline of about 2.3 percent in its nonfarm payroll jobs. And that does not account for the fact that the working-age population has continued to grow, meaning that if the economy were healthy we should have more jobs today than we had before the downturn.

Getting the economy to 5 percent unemployment within two years, a return to the rate that prevailed when the downturn, would require job growth of closer to 285,000.

So, we slog along. The Federal Reserves QE to Infinity and Beyond just isn't enough to get the jobs numbers improving. Maybe monetary policy could do something, but the current efforts are misdirected. Fiscal policy isn't helping. The Social Security Payroll Tax hike only shrinks paychecks. States are looking to raise sales taxes. Military spending fell 22.2% in the fourth quarter; eventually we should see a Peace Dividend but right now it's just spending cuts. Spending cuts won't add jobs.

The only reason for employers too hire more workers is if they have more customers. Where do customers come from? Well, you know the answer. For exporting companies, the customers come from Europe, Asia and South America. Not much growth from those areas. The government can be a customer, but the battle in Washington these days is about spending cuts and tax hikes. That leaves consumers; 70% of all economic activity. And consumers have seen their purchasing power decline. Median wages, adjusted for inflation, have been on the decline. Many consumers are still trying to pay down debts, and continue to keep a tight grip on dollars that do make it into their purse. Consumer confidence hit a 12 month low. The focus should be on moving money through the economy, in turn creating demand, and in turn creating jobs.

Once we get more jobs, if we get more jobs. Then everything gets easier.

The jobs news was good enough to push the major market indices higher. The Dow tops 14,000. The S&P 500 climbs above 1500. It was the best January of the new century. All this market news is great, especially if you already have a big chunk of change in the markets. The fear is that the average investor, who isn't in the market, who hasn't participated in the rally, will finally jump in when the rubber band has stretched fully. Yes, stocks have become more widely held over the past two decades. And roughly half of Americans own some stocks through mutual funds and pension funds. But only about a third of all Americans hold more than $10,000 in stock. So while more Americans hold stock, they don't hold much. Wealth for most families comes from their homes and jobs , which have not not recovered as quickly or as strongly as stocks.

And if you think the S&P climbed too quickly, check out Italy and Spain. After posting modest gains during the first week of the new year, both these markets exploded to the upside, quickly outpacing the S&P. But both Italian and Spanish shares are rolling over a bit. Nationalization of a Dutch bank today provided a stark reminder that Europe is still struggling to shake off the legacy of the financial crisis and find a way to let banks fail without loading up governments with debt. The Dutch government was forced to rescue SNS REALL to protect savers' deposits after the banking and insurance group racked up huge losses on real estate lending. Attempts to find a private buyer or investor failed.

A couple of economic reports: the automakers posted strong sales for January. GM sales were up 16% compared to a year ago. Ford up 22%, Toyota up 27%, and Chrysler with a 16% gain.

The Institute for Supply Managements manufacturing index climbed to 53.1 last month from December’s 50.2. Readings above 50 signal expansion.

Exxon Mobil and Chevron, the largest U.S. energy producers, are boosting profits with oil refineries that some analysts and investors urged them to divest as recently as last year. Earnings from processing crude into fuels such as gasoline and diesel more than made up for lagging returns from oil and natural gas exploration during the final three months of 2012, Exxon and Chevron reported today. Fuel refining helped propel fourth-quarter net income to a five-year high of almost $9.95 billion for Exxon and a record $7.25 billion for Chevron.

Those stories have a common thread. The price of oil has been climbing; good news for Exxon and Chevron; drivers have been buying new cars, which are generally more fuel efficient. For some folks the math is simple. Say you spend $300 a month on gas, and you're driving a vehicle that get 15 to 20 MPG. Switch that for a new car that gets 35 to 40 miles per gallon, and in many cases you pay the cost of a new car with the gas savings. As sales of new cars increase, it ripples through the economy.