Labor Report – September
Some government economic data that we had missed during the shutdown is being released, primarily the jobs data. While the market has mostly ignored the economic stagnation, taper fear, and government shutdown – it is still worth keeping track off. There is a psychological impact with the government data which could inject some optimism or pessimism into the market. Today we get a late Labor Report; is it good or bad?
Labor Report – better late than never.
The government shutdown in the beginning of October meant that government economic data was not going to be released. There was speculation as to what the September jobs numbers should be, even CNBC ran their own model and came up with a guess-timate.
This morning the BLS released the September Labor Report and it came in worse than expected. Economists expected 180,000 jobs created last month, but the report showed that only 148,000 jobs were created. Before we start blaming the big drop in jobs creation on the government shutdown, we must remember that this is September’s Labor Report which was prior to the government shutdown.
The previous months were revised. August was revised higher by 24,000, to 193,000, from 169,000; however, July was revised down by 15,000 from 104,000 to 89,000. So the look back revisions did not really confirm anything to substantiate a trend either way. When we look at the how jobs were created we saw the biggest increases came from business/professional services with 32,000 jobs created, followed by 20,000 part-time jobs created. One of the strongest sectors has been the leisure and hospitality industry, but that saw a decline of 7,000 last month. We have continued to see a bothersome trend in the net jobs numbers and that is a growth in part-time, rather than full-time jobs.
The politically touted, official U-3 unemployment rate fell from 7.2% from 7.3% and that will sure grab headlines and be hailed as an improvement. However, the participation rate remains at decades low and job creation last month was 17% worse than expected. The U-6 total unemployment rate came in at 13.6%, which is still very high. What remains a factor is the unemployed for 15 weeks or longer, as well as those that completed some temporary work; those numbers remained elevated and did not decrease for the month. If we take the U3 headline number for face value, then it seems that the unemployment rate is improving. However, once you dig through the data and take into consideration the participation rate, temporary, extended unemployed numbers, and the adjustments, there is really no way to determine if the job creation and unemployment are making any significant changes. The only thing I was able to determine was that the data was mixed and it seems more stagnation. To be fair, it is possible that the looming government shutdown/debt ceiling in October caused job creation trepidation in September, but that is just conjecture.
Courtesy of shadowstats.com
Reviewing the data for the year, I would say that the domestic job landscape is in stagnation. One can certainly point to job creation in the part-time/temporary work force, which I expect that to pick up as we come in to the holiday season (as retail starts staffing for part-time); however, we know this has only a seasonal effect. The real concerning factors are the very low participation rate and the lack-luster full-time job creation.
My personal opinion is that if you have a specialized skill (programmer, doctor, engineer, etc.) you can certainly find a well paying job. In fact, our nation lacks quality, skilled labor in the technology fields, hence all the off-shore job creation. Even Obamacare hired off-shore contractors to build their website and technology for Obamacare. Personally, I find that having the largest contractor who built the Obamacare technology as an off-shore company the pinnacle of absurd hypocrisy. Oh well, at least there are some good high-paying (over-charging) technology jobs being funded by the taxpayers.
Lack of Competition!
My concern is for all those college students graduating with Political Science, Marketing, Psychology, Sociology and other similar degrees. What kind of job are they going to get, if they can even get one? I remember living in San Francisco during the Dot.com boom and bust, all those that lost their jobs were not programmers (producers), they were the middle management people with no real skills. From our own personal experience at Silexx (software company) – it is hard, very hard, to find qualified and skilled U.S. programmers. In fact, when we put our job offers out we are flooded with programmers from India, Russia, China, and every nation but the U.S. You wonder why technology firms are hiring and building R&D centers overseas, because that is where the talent is. If you have a child, you need to supplement their public/private education because I just don’t think our education system is producing the best and brightest to compete in the global market, especially in the technology industry. Sorry for the rant; I have a son and a niece in college – I am openly concerned.
The pre-market futures has slugged off the delayed Labor Report that once had been so important. Is government data a market driving force anymore, or has the market begun to realize the government is operating in its own world of absurdity of shutdowns, stand-offs, and crisis after crisis? I suspect the real driver of the economy, going forward, is the Federal Reserve and their money printing operation (aka QE). If the Fed holds true to their quantification of whether they will or will not taper, well this Labor Report is confirming there will be no Taper anytime soon. You know my position, with Yellen at the helm and government deficit spending, we are in for the long-haul of QE and, frankly, I think we could see it increase before they taper.
Support & Resistance
The rally is losing some momentum. We rallied strong off the support levels on the news that the government kicked the can down the road. However, with some of the recent earnings focusing on domestic revenue, the very-short holiday season, and this morning’s weak Labor Report for September, I think we could see some selling pressure and resistance begin to build at that 15,500 level.
The one shinning sector remains the technology industry and I think, regardless of domestic stagnation and problems in the West, it will continue to be the strong sector. We are in a new technology revolution that is bridging the gap between applications and cloud-based computing. This technology revolution is impacting every part of the technology sector, from media and entertainment to science, healthcare, and defense. While this index can still take some volatile hits from domestic economic concerns, I believe there is some long-term fundamental strength in some of these companies.
SPX is a mixed bag as it represents a broad group of companies. Technologies are helping the index move higher, so are over-seas revenue. What is dragging on this index is domestic retailers and weak western consumers. It’s the Pushmi Pullyu of the market. I would look at the 1720 area as the first support test area. We could see a roll-off in this index similar to the Dow Jones.
The RUT broke-out, but is starting to lose some momentum. There was an investment rush, but the order flow into the broad-based market is starting to weaken a little. We could see some profit taking in the 4th quarter. We could finish well for the year.
Love him or hate him, but Alan Greenspan has a wealth of experience and knowledge. I have always had an ambivalent feeling towards him and his policies. Once a close friend of Ayn Rand and a supporter of the Gold Standard, he had become the antithesis of his youthful ideology. He strayed from a more Austrian economic view towards the Chicago School of Friedman. Only those that are not Austrian or Chicago school economists would argue they are the same. He did take some of Volker’s lead by raising interest rates to cool off inflationary growth, but was never aggressive in doing so. Alan took baby steps (ALWAYS) at 25 bps at a time. Never wanting to shake-up the market or inject volatility. He was careful with his words and created his own vague language; to this day no one knows what he said. He certainly shares in the responsibility for helping fuel the housing bubble by taking rates to 1% after the Dot.com bubble; however, I find that economists that lay blame at Greenspan’s feet for creating the bubble by lowering interest rates to 1%, while at the same time praising Bernanke for saving the economy (who has now taken rates to ZERO), are just hypocrites in the academic, ideological world of typical Keynesians such as Paul Krugman. The fact is Greenspan and Bernanke did the exact same thing, take rates down to boost spending and create inflation. To argue that one is to blame and the other is the savior is just ideologically blind masturbation.
All that aside, while I don’t necessarily see eye-to-eye with Greenspan, I do take interest in what he has to say, since he operated in the heart of the system for almost two decades. So I think it comes as a surprise to many that in his recent book, he pretty much lays out the case that the system is BROKEN! He has even admitted that neither he, Bernanke, or anyone have the proper tools to know when or how to address the irrational risk-taking in a leveraged, inflated, catastrophic bubble (like the Dot.com or the most resent Housing bubble). Is he returning to the beliefs of his youth? I have not read the book, but plan to. I will save my opinion of his conclusion until I have read the book. The Map and the Territory: Risk, Human Nature, and the Future of Forecasting
What I do know is that when you make money cheap and easy, people will act irrational and leverage up risk. The Fed is certainly part of the fuel to any asset inflation as it controls the interest rates and thus the cost of money. The Q&A session on CNBC was worth watching and I will certainly be interested in reading the book.
Interestingly enough, I had a recent conversation with someone who had lost their home to foreclosure. They blamed the bank. They actually said, the bank should have NEVER lent me the money if they knew I couldn’t pay it back! I was fascinated and shocked at this response, because the person had fully rationalized away any of their own responsibility for borrowing the money and paying it back. No one forced them to borrow the money, but since the money was cheap and easy – then why not borrow it?
If you haven’t watched Dailo’s video on economic cycles’ it’s worth it: Economic Cycles