Friday, November 2, 2012 - Jobs, Jobs, and More Jobs

Jobs, Jobs, and More Jobs
by Sinclair Noe

11022012 Script

DOW – 139 = 13,093
SPX – 13 = 1414
NAS – 37 = 2982
10 YR YLD +.01 = 1.73%

OIL – 1.98 = 87.58
GOLD - 38.10 = 1677.90
SILV – 1.35 = 31.01

The big economic news of the day is the October jobs report. The Labor Department says the economy added 171,000 jobs last month, and they revised prior months to show even more job gains. The unemployment rate rose to 7.9%, as more people entered the labor pool. Some 578,000 people entered the labor force in September, according to the household survey, with 410,000 saying they found work. The discrepancy led to the slight uptick in the unemployment rate.

The professional-services sector created 51,000 jobs, health care added 31,000, retail gained 36,000 and leisure and hospitality companies hired 28,000 workers, manufacturers added 13,000 jobs after shedding workers in the prior two months. Altogether, the private sector added 184,000 jobs, with government subtracting 13,000 from the final total.

Any jump in jobs is good for housing. While overall construction added 17,000 jobs in September, residential-building construction employment fell by 2,000. Residential specialty contractor jobs increased by 6,700, which speaks to the real root of today's housing recovery. All-cash investors are leading the gains; they buy distressed properties and then repair and remodel them to turn them into rentals. It's no wonder remodelers are seeing greater gains than the home builders.

Companies also hired more employees in September and August than previously estimated. The number of new jobs created in September was revised up to 148,000 from 114,000. And August’s figure was revised up to 192,000 from 142,000 to mark the best month of hiring since February. Monthly job growth has averaged 173,000 over the past four months.

The U6 unemployment rate includes discouraged jobseekers and those forced to work part-time jobs; the U6 rate fell to 14.6% in October from 14.7%. The U6 rate has fallen gradually over the past year. The number of people working part-time fell by 269,000 to 8.3 million in October. These are individuals working part-time because they can't find full-time jobs or because hours were cut back. There are 5.0 million workers who have been unemployed for more than 26 weeks and still want a job. This was up from 4.84 million in September. This is generally trending down, but is still very high.

Meanwhile, average hourly wages fell 1 cent to $23.58 in October. For the past 12 months wages have risen 1.6%, the slowest increase in 26 years. That’s not enough to match the rate of inflation – meaning that hourly earnings continue to drop in real terms. The average workweek was unchanged for the fourth month in a row at 34.4 hours. The two most important trends, confirmed in today’s jobs report from the Bureau of Labor Statistics, are that jobs slowly continue to return, and those jobs are paying less and less. The biggest challenge ahead isn’t just to get jobs back. They’re coming back. It’s to raise the wages of most Americans.This isn’t a new challenge. The median wage has been flat for three decades, when you adjust for inflation. Since 2000 it’s been dropping.

The economy has only added 1.55 million private sector payroll jobs over the first nine months of the year. At this pace, the economy would only add 1.9 million private sector jobs in 2012; less than the 2.1 million added in 2011. Since January 2009, private sector payrolls are up a 759,000, while government jobs are down 565,000; the net is positive 194,000. There will be revisions to those numbers, part of an annual revision process expected to push total payroll jobs up to 1.2 million for a net gain of 580,000. By comparison, the Bush administration added 1.1 million jobs over eight years based on the total payroll count between January 2001 and January 2009. That number was positive only because the number of government jobs rose during those years. Private-sector employment fell by 646,000 during his presidency.

Both Presidential Campaign Teams put a spin on the jobs report. I don't think the report was especially significant for either side. It was a good report, a little better than expected; it was not a great report, nor was it horrible; we continue to see slow, sluggish job growth. The growth is sustained but the trend is sub-par.

With the election right around the corner and Hurricane Sandy, we almost forgot about the regular dose of banks behaving badly. The bankers have not suddenly changed their stripes. The latest infraction comes our way via the US Federal Energy Regulatory Commission, or FERC; they are proposing a $470 million dollar fine against Barclays for attempts to manipulate California power markets. Now, if you just had a flashback to 2001 and visions of Enron danced through your brain, then you are actually on the right track. A few traders for Barclays' west coast power trading desk are alleged to have manipulated prices by driving up or down physical power prices to make money on swaps. And just like back in the bad old Enron days, the Barclays traders exchanged crude emails detailing how they were gaming the system. And the Barclays traders were all veterans of Mirant's old trading desk. Barclays exited the California power markets last year.

As much as cases like this are badly overdue, it also feeds perceptions that US regulators are only willing to get tough on non-US institutions. What about JP Morgan and silver markets? What about pretty much all the major US banks and municipal bid rigging? What about the big US banks that set the Libor rates?

Remember the San Onofre Nuclear power plant? It started leaking radiation back in January and was taken off-line. So Cal Edison reports that inspections and repairs have now cost $96 million and power to replace lost output has cost $221 million, for a total loss of $317 million so far. Last month, SoCal Ed submitted plans to run at 70% capacity. Now, they admit they might not get regulatory approval for that plan, and that the plant might never come back online fully.

Meanwhile, RBS wants to seal a settlement with regulators over its alleged rigging of key interest rates in the coming months, as the part state-owned bank looks to draw a line under the scandal. Speaking to reporters at the bank’s third-quarter results presentation, Chief Executive Stephen Hester said he would be “disappointed” if he couldn’t provide details on a settlement by February.

The Securities and Exchange Commission may consider whether exchanges’ emergency regimens need to be bolstered. The industry’s decision to halt equities and bond trading shows the challenge of maintaining markets when a catastrophe threatens New York City, home to 168,700 securities industry workers. One of the purposes of having electronic exchanges and basing them away from New York City is for the market to be more robust and stay open. This is what the back-up plans were designed for. But the markets didn’t stay open.

Meanwhile, in New York, the death toll from Hurricane Sandy now stands at 102. Forty-one died in New York City, about half of them in Staten Island, which was overrun by a wall of water. More than 3.7 million homes and businesses along the East Coast remained without power. While power was expected to be returned throughout Manhattan by Saturday, it could be another week or more in suburbs and more distant towns along the coast. Only 40% of the gas stations in New York and New Jersey are operating because of a combination of power outages and constricted supplies. The lines for gasoline stretch for miles. The New York subways have only been partially restored, so there are still big problems with public transportation.

The National Guard is distributing food and water in the blackout zone. It supposedly had 230,000 meals and was getting 1.5 million as of late. Water contamination will be a problem in the days ahead. The New York city hospital system is terribly strained but limping along. Meanwhile,AP reports the New York Marathon will NOT be run on Sunday. Taking away just one emergency responder at this point, doesn't work.

Patience is wearing thin; I think that happens after about 72 hours. Federal response certainly looks better than Katrina, but this isn't going to be cleaned up in a week. Discontent will rise. The disaster should be a wake-up call. Mayor Bloomberg seemed to indicate as much yesterday, when he endorsed President Obama, largely because of the climate change issue. There is a very good chance we will see future disasters, and then the question is whether we have made the necessary investments to minimize deaths and dislocations.

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