Friday, June 06, 2014 - Jobs Report Friday

Jobs Report Friday
by Sinclair Noe

DOW + 88 = 16,924
SPX + 8 = 1949
NAS + 25 = 4321
10 YR YLD + .01 = 2.59%
OIL + .31 = 102.79
GOLD - .90 = 1253.30
SILV - .02 = 19.11

Another record high close for the Dow Industrial Average and the S&P 500.

It’s said that it takes a war to end a war; 70 years ago, 150,000 soldiers invaded Normandy, and it’s estimated that about 4,400 lost their lives in the biggest military assault in history, D-Day. There were ceremonies on the beach today, as well as locations around the world, to honor the soldiers lost and the veterans still with us; their numbers are dwindling with the passage of time, but about 3,000 made the pilgrimage to Normandy today.  For the rest of us, it’s hard to imagine what happened 70 years ago, but whatever difficulties we may face in our day to day lives seem small compared with what those men faced. This is a special day, one that should never be forgotten.

Each month we analyze the jobs report. The jobs number came in about as expected. Non-farm payrolls added 217,000 jobs in May. The unemployment rate, which is drawn from a different survey of households, remained unchanged at 6.3%.

April’s employment numbers were revised down to 282,000 jobs added from 288,000. March payroll figures were not revised, remaining at 203,000 jobs added. This is the fourth consecutive month that non-farm payrolls increased more than 200,000. That is the first time that we have seen four consecutive months of 200,000 or more since October of 1999.

The labor force participation rate also remained unchanged from the 62.8% rate reported for April. The participation rate has shown no clear trend since this past October but is down by 0.6% over the year. At 62.8%, the labor participation rate remains at lows not seen since the late 1970s, a sign that many Americans have given up the search for work entirely and remain wary about their prospects of getting a job, not even bothering to look for one. There are 3.37 million workers who have been unemployed for more than 26 weeks and still want a job; this is down from 3.45 million in April. Long-term unemployment is trending down; now at the lowest level since March 2009, but still high.

There are many reasons why the participation rate is low, and one key factor that we’ve heard repeated is that it is simply a case of demographics, or older workers who are near retirement age. However, according to data from the OECD, the employment to population ratio for workers between ages of 25-54 is down by 3.5 percentage points from its pre-recession level; and for workers between the ages of 55-64 it is only down by 0.9 percentage points.

With today’s jobs report, the US economy is now back to pre-recession peak levels of employment; we have recovered the number of jobs that were lost, and employment is now at an all-time high. This is the longest post-World War II recovery the US has experienced. The US lost 8.7 million jobs in the recession. Through the first five months of 2014, the economy has added 1,068,000 payroll jobs - slightly better than during the same period in 2013 even with the severe weather early this year. From the period between World War II and the 1980s there was a fairly predictable pace for recoveries. It took roughly six months for US employment levels to recover after each post-war recession through the 1980s. Then, things changed. It took 15 months after the 1990–91 recession for employment to reach its pre-crisis levels, and 39 months after the 2001 recession.

While the addition of nearly nine million jobs since hiring bottomed out in February 2010 is certainly good news, the number is still far from what is necessary to accommodate new graduates and millions of others who have entered the work force since payrolls last peaked in January 2008 at 138,365,000 jobs. We now have about the same number of jobs as we did then, but millions more who might wish to hold them. So, we’re back to where we were but not where we should be.

Here's one way of looking at that. There were 7.6 million unemployed people in the US in January 2008, and the unemployment rate was 4.9%. Today, there are 9.8 million unemployed Americans, well over 2 million more than before the recession, and the unemployment rate is much higher.

Another important milestone as today’s report marks the 51^st consecutive month of private sector job gains, which matches the longest previous string of consecutive employment gains. Our current streak matches the one that ran from February 1996 to April 2000. These two milestones give us an indication of how deep the losses were, but also how much further we need to go to get back to a solid economy.

The number of persons working part time for economic reasons declined in May to 7.26 million from 7.46 million in April.  These workers are included in the alternate measure of labor underutilization, known as U-6, which decreased to 12.2% in May from 12.3% in April. This is the lowest level for U-6 since October 2008, and down from the peak of 17.2%, but still high by historical standards.

Within various job segments, the business and professional services segment added 55,000 jobs, the same as its average monthly job gain over the prior 12 months. The healthcare industry added 34,000 jobs for the month, twice its average monthly gain for the prior twelve months. Retailers added 12,500 jobs and the transportation and warehousing sector added 16,400. The manufacturing sector added 10,000 jobs, and the length of the typical workweek for manufacturing workers increased slightly to just over 41 hours, a sign factory managers would rather add overtime instead of hiring additional workers. By contrast, the workweek for all employees in the private sector, including white-collar workers, was unchanged at 34.5 hours.

In May, average hourly earnings rose 5 cents to $24.38; over the past twelve months, average hourly earnings have risen 2.1%. We frequently hear that employers would hire more workers but the workers lack the skill set for the jobs. If employers were actually having difficulty finding workers with the necessary skills we should expect to see occupations or industries in which wages are rising rapidly. That is how employers attract workers for positions they have trouble filling. We are not seeing any major sectors of the economy with significant increases in wages, so that tends to invalidate the issue of a skills mismatch.

Even as private employers have gradually increased hiring in the recovery, the work force at government agencies and the Postal Service has shrunk dramatically. Total government employment is still down by more than one million from where it was four years ago. State and local governments added 6,000 jobs.  State and local government employment is now up 107,000 from the bottom, but still 637,000 below the peak. It appears state and local employment is now increasing.  Federal government layoffs are ongoing, with another 5,000 jobs lost in May.

Unlike previous reports, the gains have been broad based—there were new jobs created in many sectors, including higher paying and important ones like manufacturing and construction. But 50% of all the jobs being created in this country are still in the low-wage category: retail clerk positions, home heath aids, waitresses and the like. And more importantly, pay isn’t going up much. While it is certainly better to have a job compared to no job, better still to have a job that pays decent wages, and that is still missing. 

Tuesday, September 25, 2012 - Fed Good at Growing Inequality

Fed Good at Growing Inequality

by Sinclair Noe

DOW – 101 = 13,457
SPX – 15 = 1441
NAS – 43 = 3117
10 YR YLD -.04 = 1.68%
OIL - .51 = 90.86
GOLD – 3.90 = 1761.60
SILV - .23 = 33.84
PLAT + 8.00 = 1634.00

Let’s start with a few economic reports. Case Shiller’s Index of existing home sales posted a 1.6% increase in July; all 20 cities in the index saw housing prices rise; it’s the fourth month of price increases, and the past 12 months are now showing increases. This is very positive news for housing. Pricesin Phoenix gained 2.2% to take the year-on-year increase to 16.6%, by far the strongest advance of any major metropolitan area. Los Angeles saw a 1.3% gain, and the year-over-year comparison has now turned positive by 0.4%.

The consumer-confidence index increased to 70.3 in September, the highest level since February. Generally when the economy is growing at a good clip, confidence readings reach at least 90. September expectations increased for employment and business conditions, while consumers’ views on the present situation also rose. One of the big factors affecting the optimistic outlook is the turn in the housing market.  In August, the dividend-reinvested S&P 500 was up some 18% year-on-year. The combination of positive returns on stocks and real estate hasn’t been this good since 2006. Any economic gains are still fragile but you take whatever positives you can find. Both consumer-confidence measures, the one conducted by the University of Michigan and the one done by the Conference Board, showed big pops in September.

Optimism is a marvelous thing but every party has a pooper, and today, the party on Wall Street fizzled when  Federal Reserve Bank of Philadelphia President Charles Plosser said the central bank's latest round of monetary easing was unlikely to help growth. Earlier this month, the Fed announced it would continue with Operation Twist, and they added a plan to buy $40 billion a month in mortgage backed securities; the plan was open-ended; the Fed would just keep buying until the employment situation improved.  But Plosser doesn’t think it will work; he says: “We are unlikely to see much benefit to growth or to employment from further asset purchases." 

Plosser’s comments weren’t a big surprise; he is considered hawkish among the Fed Presidents. Other Fed leaders have announced their support for QE to infinity and beyond. Still, Plosser drew some of the blame for the stock market’s sour mood this afternoon.

Central banks in the US, Europe and Japan may have come forward with stimulus measures in recent weeks to try to stimulate the global economy but not every country is cranking up the printing press. South Korea is buying gold; they added about 70 metric tons of gold to their reserves. Russia also added to reserves, but not as much as the Koreans. So the trend of central banks beefing up their gold reserves is alive and well.

Inflation is the most talked about risk of all this central bank money printing but there is still a lot of deleveraging in the US economy.  Bernanke is probably right to discount inflation as a short term danger. Meanwhile, we’ve heard nothing from the Federal Reserve or its assorted hawk and dove presidents about the impact of the Fed’s sustained easy-money policy on economic inequality. The Organization for Economic Cooperation and Development, the OECD says income inequality has been increasing in the US, to the point where the top 10 percent of our population earns 14 times more than the bottom decile; the OECD average ratio is 9 to 1.

You can’t blame the Fed. Well, you can blame them but not for everything. The world has changed, and you have to consider globablization, technological change, education, demographic patterns, and fiscal policy has been horrific in this country for at least the past 30 years, maybe forty.  Maybe the Fed cranking up the printing press will help create a few jobs, which might help the inequality problem. Workers pulling in a wage are doing better than workers pulling in an unemployment check or nothing at all.  The crazy part is how the Fed’s plan may or may not work. Bernanke’s plan is to push down interest rates across the board which should increase the value of assets such as stocks and real estate; then the people that own stocks and real estate will feel wealthier and they will be more likely to go out and spend money or borrow money to spend; rising demand will force businesses to hire new workers. We know that people are feeling more confident but that might not equate to feeling wealthier, much less result in actual spending 

Individual participation in equities has been on the decline for 10 years; institutional investors and high frequency traders dominate the stock markets. Families in the lowest 20 percent of the income distribution scale spend more than a third of their income on food. Households in the bottom fifth spend 10% of their annual income on gas, vs. 2.2% for the top quintile. Yesterday, Goldman Sachs predicted commodity prices will rise 18.2%, in large part because of QE. Ironic, isn’t it?

The Dallas Federal Reserve is a strange branch location; they’ve issued papers about splitting up the too big to fail banks. Now they’ve issued a research paper that examines the central banks role in increasing inequality. The paper says the Fed’s accommodative policy and bailouts have supported the financial sector and the result is the rich got richer and the poor got poorer, and the result is the US has more inequality than any other developed nation. Bernanke says he wants to help people get jobs, but the tools he has used over the years and continues to use today have only resulted in a lopsided economy.

Part of the blame has to fall at the feet of Congress. Bernanke is giving Congress at least a little cover for continuing to do nothing. In pop psychology that's known as being an enabler. Has he even considered the merits of holding Congress's feet to the fire by declining to perpetuate his policy of centrally-planned subsidized money and the accompanying systematic understating of risk?

What else is going on in the world? The Greek government is resisting a push by yhe IMF to impose additional austerity measures. The Greek people are increasingly angry over the prospect that public salaries and pensions will be cut again in a last-ditch bid to secure a new loan installment of $40 billion from Greece’s creditors.

Meanwhile, the Portuguese people have put up with one draconian package after another – with longer working hours, pay cuts, tax rises, an erosion of pensions, and the result is that the economy has contracted by a little over 10%.They have protested peacefully, but they finally said enough is enough and they have killed a plan to raise social security taxes. Portugal cannot recover under the policies in place. The government is destroying the Portuguese economy for no useful purpose. It is pain without gain.

As Spain tries desperately to meet its budget targets, it has been forced to embark on the same path as Greece, introducing one austerity measure after another, cutting jobs, salaries, pensions and benefits, even as the economy continues to shrink.  Once again, Spanish protestors took to the streets and encircled the main parliament building. Parliament took on the appearance of a heavily guarded fortress as about 1,400 police officers ringed the building to keep back demonstrators. The organizers of the latest protest said in a statement that they had no plans to try to occupy Parliament, but instead wanted to surround the building to show that “democracy has been kidnapped” and needs to be saved from the hands of inept Spanish politicians. Spain must still decide whether they want to accept the IMF bailout and its attendant demands, which can never be met.

The Bank for International Settlements says  German lenders have the highest exposure in Europe to Spain, at $139.9 billion, of which $45.9 billion alone is exposure to banks.

March, Tuesday 27, 2012

DOW – 43 = 13, 197
SPX – 3 = 1412
NAS – 2 = 3120
10 YR YLD -.06 = 2.19%
OIL - .52 = 106.81
GOLD – 9.30 = 1681.60
SILV -.25 = 32.69

PLAT + 6.00 = 1656.00

A flat trading day on Wall Street; weakness in financials compared to a little strength in tech; the weakness carried the day.

The Standard & Poor's/Case-Shiller index of 20 American cities fell 0.8% from December to January and 3.8% from January 2011. Sixteen cities tracked by the index posted declines. Eight cities saw average home prices hit new lows. Home values fell for the fifth-straight month and prices dropped to their lowest levels since 2003. In January, Washington, Miami and Phoenix were the only metro areas that posted monthly gains. Robert Shiller, a professor of economics at Yale University and co-creator of the Standard & Poor's/Case-Shiller Index, says the market has "a chance" of rebounding even though the downward momentum in the real estate market has accelerated in the past five years. Shiller says the problems facing mortgage giants Fannie Mae and Freddie Mac must be resolved before housing can bottom. There is speculation that Fannie and Freddie could sell bundles of foreclosed homes to hedge funds; both Fannie and Freddie are reportedly leaning toward principal mortgage write-downs and loan forgiveness, but don't hold your breath on that.

Of course you don't make your home buying decisions based on national averages. All real estate is local. There have been several calls of a housing bottom in the past few weeks. Maybe, maybe not; part of that is local. There is a better chance of a bottom in Phoenix than in Atlanta. A market bottoming out never feels like a buying opportunity, not unless you like the feeling of having your stomach twisted in knows, and certainly not with 28% of all mortgaged homes underwater, and certainly not with the prospect of rising foreclosures. Still, everybody has to live somewhere.

The nationwide average for a gallon of gas is $3.99, lots more in some places, like the gas station where you just filled up. And when you watch the numbers spinning at the pump, how does it make you feel? The Conference Board's monthly consumer confidence index slipped to 70.2 from 71.6 in February, mainly because of the rising gas prices. With more of their money spilling into their gas tanks, consumers may be less likely to spend.

The head of the Organization for Economic Cooperation and Development says the Euro-zone is not out of the woods despite signs of steadiness in the financial markets, and keeping the Euro-zone financially stable will require a bailout fund of at least $1.3 trillion -- "the mother of all firewalls". At least it will be the mother of all firewalls until the flames lap over the top. OECD Secretary-General Angel Gurria says the  current $664-billion commitments to the buffer funds won’t do the trick. Debt levels in Europe remain high, banks are vulnerable, austerity programs are difficult to implement and are likely to reduce economic output, add in high unemployment and weak consumer and investor confidence. Some nations' risk spreads are at unsustainable levels and "have showed signs of creeping up in the last few days." Gurria says a bigger bailout fund would give governments the breathing room to focus on jump-starting growth and competitiveness. So far, the proposals from the World Bank, the IMF, and the OECD haven't been so great at jump-starting anything.

Spain will present a new budget on Friday; the prime minister promises it will be very very austere. Spain is facing soaring unemployment and rising borrowing costs, and the prospect of a lost decade of growth. Spain has public debt at almost 70 percent of gross domestic product and one of the highest levels of private debt in the euro zone. The economy is more than twice the size of Ireland Greece and Portugal combined, and is seen as too large for the euro zone to let it fail. Spanish government borrowing costs have fallen from 14-year highs reached last year but with economic fears resurfacing the risk premium over German bonds has started to rise again.

Meanwhile, the Spanish private sector is deleveraging at the same time the government is pushing austerity. If someone thinks Spain is going to grow its way out of the economic problems, I'm not seeing how that can happen. There is a risk that eventually Spain will need to seek a bailout to borrow at reasonable rates of interest. And so, the mother of all firewalls might not be enough.

The Federal Trade Commission is calling for a new law that would allow people to review the vast amounts of information being collected about them as the Internet, smartphones and other technology make it easier to create digital dossiers of just about anyone's life.

The proposal comes a month after the Obama administration issued a proposed "Consumer Privacy Bill of Rights" and urged technology companies, consumer groups and others to work together on developing more safeguards.

The FTC said Congress needs to impose more controls over "data brokers" that profit from the collection and sale of files containing sensitive information that can affect people's ability to get a job or find a place to live. These data brokers range from publicly traded companies to a hodgepodge of small, regional services that may only have two or three employees.

An investigation by The Associated Press last year found that data brokers often store incorrect or outdated information, including criminal records. In some cases, people are denied jobs because data brokers incorrectly report them as convicted felons. Widespread complaints about inaccurate records triggered a class-action lawsuit that culminated in one database company, HireRight Solutions, to settle the case for $28.4 million last year.

The FTC is pushing for a law that would let consumers see their files and dispute personal data held by information brokers. It would be similar to current federal laws that guarantee consumers free access to their credit reports once a year.