Friday, April 2, 2010

Morning and Employment Situation Update 4/2

Good Morning,

Equity markets are closed today but futures are trading and the bond market is open - must keep that debt flowing after all. The futures rose sharply on this morning’s March Employment Situation Report, below is a 30 minute view of DOW futures on the left and 5 minute S&P on the right:

The dollar is rising on this report, while bonds are dropping like a stone and are right back on support at the large neckline.

The headline number came in with an increase of 162,000 and the rate remained steady at 9.7%. Let’s start with Econoday’s take:
Census hiring was not as strong as expected but private payrolls were healthy, posting a third consecutive gain. Nonfarm payroll employment in March rebounded 162,000, following a revised 14,000 decline in February and revised rise of 14,000 for January. The March gain came in below analysts' forecast for a 200,000 jump in employment. Importantly, the February and January revisions were up a net 62,000, inclusive of moving January from negative to positive territory.

While the headline payroll number was disappointing, the detail was positive. Private payrolls (which discount Census hiring and other government changes) jumped 123,000 in March, following an 8,000 rise in February and a 16,000 gain in January.

More specifically, Census hiring was up 48,000 in March, meaning that ex-Census, payroll jobs were up 114,000 for the month.

Sector detail was encouraging. Goods-producing jobs rebounded 41,000 after a 47,000 drop in February. Manufacturing employment was up 17,000, following a 6,000 boost in February. Notably, construction jobs rose 15,000 after a 59,000 drop the month before. This was the first gain in construction since June 2007. Mining advanced 8,000 in the latest month.

Private service-providing employment jumped 82,000 in March, following a 55,000 gain the month before. Temp jobs were up 40,000, following a 37,000 rise in February. Health care jumped 37,000 in March while leisure & hospitality gained 22,000. Retail trade increased 15,000 in March as wholesale trade was up 9,000. On the negative side, financial activities fell 21,000 in March.

On a year-ago basis, payroll jobs improved to minus 1.8 percent in March from minus 2.4 percent in February.

The big negative in the March report was for average hourly earnings. Wage inflation in March fell to a 0.1 percent decline from a 0.2 percent gain the month before. The consensus had expected a 0.2 percent advance. The average workweek (traditional series for production and nonsupervisory workers) improved to 33.3 hours in March from 33.1 the previous month. For all workers, the average workweek edged up to 34.0 hours from 33.9 hours in February.

From the household survey, the unemployment rate was unchanged at 9.7 percent in February and matched expectations.

Overall, today's report net was close to expectations. Stock futures rose somewhat and Treasuries rates firmed on the news.

It’s quite noticeable how they are skipping over anything even remotely negative. Let’s start with the fact that the economy needs to generate a quarter million new jobs each month just to keep up with population growth. Now let’s look at some aspects they didn’t cover, below is the full report:

Employment March

Only four paragraphs in we learn, “The number of long-term unemployed (those jobless for 27 weeks and over) increased by 414,000 over the month to 6.5 million. In March, 44.1 percent of unemployed persons were jobless for 27 weeks or more.”

In one month the long term unemployed increased 414,000! How bad is that 27 week figure and how does it compare to say, oh, the post WWII era? How about this:

Just another cycle, same as the others, right?

Okay, here is where you read the human part of what’s happening at the margins.
The number of persons working part time for economic reasons (sometimes referred to as involuntary part-time workers) increased to 9.1 million in March. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job. (See table A-8.)

About 2.3 million persons were marginally attached to the labor force in March, compared with 2.1 million 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. (See table A-16.)

Among the marginally attached, there were 1.0 million discouraged workers in March, up by 309,000 from a year earlier. (The data are not seasonally adjusted.) Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The remaining 1.3 million persons marginally attached to the labor force had not searched for work in the 4 weeks preceding the survey for reasons such as school attendance or family responsibilities.
Now let’s head to the alternate data table where we find the numbers that most closely relate to numbers how they used to be tracked:

Here we find that U6 is still running in the 17% range. The unadjusted data showed a slight decrease while the seasonally adjusted data increased.

Remember, positive numbers do not mean the trend of job losses has stopped. We must create more jobs than the population is growing. Below is the latest chart of the Employment Population Ratio. Clearly we have a long way to go to get anywhere near where we were. How does the economy do that when it is saturated with debt?

Our manufacturing employment is so decimated that despite doubling our population, we now employ the same number of people in manufacturing than we did in 1942.

Yes, we are efficient at manufacturing, but we are importing from the rest of the world instead of exporting. Place the blame for that where you may, but the ability to create real and meaningful jobs here boils down to a return to the fundamentals on building an economy based upon the rule of law.

Below is the chart John Williams produced. His way of measuring shows nearly 22% unemployment.

Chart of U.S. Unemployment

Want to see how the rule of law, or lack thereof, can destroy jobs? Look no further than the recent “healthcare”/Insurance Industry Bail Out Act. Verizon just announced it is taking nearly a billion dollar charge, and the companies writing down earnings continue to mount. Here’s a quote and chart from the Wall Street Journal:
Verizon Communications Inc. said Thursday it expects to record a one-time noncash charge of $970 million in the first quarter, to account for the anticipated impact of the recently enacted U.S. health-care overhaul.

The telecommunication company, which disclosed the charge in a Securities and Exchange Commission filing, is the latest company to take a charge to account for increased costs related to changes that will come from the health-care law. Specifically, the overhaul prevents companies from deducting tax-free subsidies it receives from the federal government for providing retirees with prescription-drug benefits.

Hey, want to create jobs by ramming massive amounts of debt into the economy? Okay, then when the economy “improves” and interest rates rise then you must pay the price for carrying that debt. There is no free lunch and rates are headed higher on this report. Pay me now or pay me later, you cannot fool Mother Nature.

Walter Trout - They Call Us the Working Class: