Friday, March 5, 2010

Morning Update/ Market Thread 3/5

Good Morning,

The Headline numbers on the Unemployment Situation Report are: The rate remained the same at 9.7%, the consensus was 9.8%. The number of jobs reportedly lost in February was 36,000, the consensus was for -50K.

Futures were up overnight and spiked on the release of the February Unemployment Situation Report. Below is a chart showing a 60 minute view of the DOW on the left and a 15 minute view of the S&P on the right:

Note in the chart above that we ran right into the upper boundary of a potential megaphone and now prices are pulling back somewhat. The dollar is higher, bonds are lower, both oil and gold are higher.

Just remember what Larry Summers said, why do you suppose he said it and what do you think his game is? Hmmm...

Let’s begin with the Econoday spin on the Employment Report:
Severe weather in February did not have as much impact on jobs numbers as feared. But government layoffs are now weighing on the numbers. Nonfarm payroll employment in February declined 36,000, following a revised 26,000 decrease in January and revised fall of 109,000 for December. The February payroll decline was less negative than the market forecast for a 50,000 fall in employment. The January and December revisions were up a net 35,000.

Weakness in February was led by a 64,000 drop in construction jobs. Rounding out the goods-producing sector, manufacturing actually edged up 1,000 and mining rose 4,000. Service-providing jobs were up 42,000 in February, following a 20,000 increase the month before. The highlight was temp help being up 48,000 in the latest month. Government jobs fell 18,000 despite the hiring of 15,000 temporary Census workers. At the federal level, the U.S. Postal Service cut 9,000 jobs. Local governments shrank their work forces by 31,000 in the latest month.

From the household survey, the unemployment rate held steady at 9.7 percent in February.

Wage inflation in February eased to a 0.1 percent rise from 0.2 percent the month before. The consensus had expected a 0.2 percent gain. The average workweek (traditional series) slipped to 33.1 hours in February from 33.3 the month before.

It's hard to really determine the direction of momentum this month given the heavy snow storms. Equities traders, however, see the numbers as positive and futures are up.

Once again we see revisions sending the prior numbers even higher. There are notes in the report regarding weather and how they count people laid off by it, basically they don’t. Within the report you will find that construction and other private sector jobs are still hemorrhaging while government is one of the few sectors growing.

Below is the Unemployment Situation Report in its entirety:

Feb Unemploy

Here are some excerpts from the summary of the report:
The number of persons working part time for economic reasons (sometimes referred to as involuntary part-time workers) increased from 8.3 to 8.8 million in February, partially offsetting a large decrease in the prior month. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.

About 2.5 million persons were marginally attached to the labor force in February, an increase of 476,000 from a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.

Among the marginally attached, there were 1.2 million discouraged workers in February, up by 473,000 from a year earlier.

Note that the numbers are up considerably from the height of the financial freeze-up one year prior to these numbers.

Below is the alternative measurement table. U6 is the number most closely comparable to how unemployment used to be calculated for those looking to compare this timeframe to earlier in the 20th century. Note that not seasonally adjusted U6 fell from 18% to 17.9%, but that seasonally adjusted U6 rose from 16.5% to 16.8%.

These numbers are depression era numbers. It may not feel like that to you, but to those unemployed I’m sure it feels a lot more depressing, and were it not for massive “safety nets” created by borrowing money we don’t possess, those people would literally be standing in soup lines.

Below is a table from showing John William’s alternate data series. This data is actually much closer to the way it was calculated during the Great Depression era. Note that his alternate is still above 21%:

Chart of U.S. Unemployment

Consumer Credit numbers come out at 3:00 Eastern.

There was a small movement on the McClelland Oscillator yesterday meaning a large price move today was likely. Prices have pulled back a little from the upper boundary of the megaphone. We’ll have to watch prices to see if we return back to the bottom or break out. I still think this appears like topping action. Keep in mind that what seems like it's taking an eternity to play out will in hindsight appear to have happened very quickly.

Remember that today is Friday, so will we get the usual front-running of the coming Monday ramp job on top of the employment front-running and ramp job? What a joke, valuations still way above historic norms, future P/E’s based on pure fantasy.