U.S. stocks got a boost after the latest jobs report showed less payroll positions were lost than White House economic adviser Larry Summers had set the market up to expect, and more importantly that we’re likely very close to some mild monthly increases in employment.  Now, we’re going to need 300K-plus per month for more than a year to bring the jobless rates down substantially (don’t forget among others waiting on the sidelines there are 2-3 million May graduates readying to enter the job market), but additions are additions and it looks like they’re around the corner. 

The market also got help from a couple of Fed officials who stated the central bank needs to keep rates low until the recovery picks up (I thought the recovery was gaining steam; that’s what we heard from the last FOMC statement).  ).  Federal Reserve Bank of Chicago President Charles Evans stated he needs to see “highly sustainable” growth before supporting steps toward tighter monetary policy and St. Louis Fed Bank President James Bullard stated policy makers want to remain “very accommodative.” 

Financials led the way on those Fed comments and energy was next in line as the price of crude jumped to $81.50/ barrel – wholesale gasoline rose to $2.27/ gallon, highest since October 2008; it appears that $3 retail is on its way. 

For the week, the broad market gained 3.10% and is now within 1% of its 16-month high touched on January 19.  The Dow Industrials added 2.33% for the week and the NASDAQ Composite jumped 3.94%.  Small-cap stocks led the week’s advance, up 5.96% -- and have led the market during this nearly one-year rally from the March 9, 2009 depths.  Mid-cap stocks added 4.35%.

Market Activity for March 5, 2010

February Jobs Report

So despite all of the talk, the weather didn’t appear to massively distort the data.   The Labor Department reported that just 36,000 payroll positions were cut in February – the consensus estimate was for a decline of 68K and the whisper number seemed to be something closer to -175K as the snowstorms were expected to create havoc in the number.  (Comments from National Economic Council President Larry Summers earlier in the week had convinced everyone that the figures would be much worse; in fact he said to “look past” this reading – I assume he doesn’t want anyone to ignore it now. 

The previous two months were positively revised on a net basis.  The January figure was revised lower to show 26K jobs lost instead of the -22K previously believed, but December was revised up to show 109K were lost instead of the 150K previously thought.  I’ve got to say that the BLS is having a rough time calculating these numbers.  For instance, that December reading was initially thought (when the number was reported for first time in January) to have declined by 75K; then the first revisions had it at

-150K; now this latest figure has it at -109K.  Does this mean the last two readings Jan. and Feb. revisions will fluctuate with each revision?  It is making it difficult to surmise what is actually occurring, but we can be pretty sure that the +/- readings will be statistically insignificant for a while. 

In terms of industry, the goods-producing sectors shed 60,000 payroll positions, a bit better than the three-month average of -75K.  Manufacturing added 1,000, a really nice improvement from the three-month average of -21K.   Construction cut 64,000 positions (which may have been caused by the weather, if so I guess we should expect a big increase in the subsequent months – although I find that hard to believe), which was not far from the three-month average of -55K.

Service-providing sectors added 42,000 payroll positions, a nice improvement from the three-month average of -9K.  Business services led the service-providers as the segment added 51,000 jobs, the three-month average is +33K.  This marked the fifth-month of increase, most of which have been temporary workers, up 48K and positive also for a fifth-straight month.  Temporary positions are up 285K over this five-month stretch.  This jump in temp. hires makes sense with the uncertainty over health-care legislation -- firms are not saddled with providing benefits for these workers.  

Education and health, the only segment that never recorded job losses during the recession, added 32,000 positions.

The government shed 18,000, largely due to reductions in the postal service, which offset the 15,000 addition for the 2010 census.  The census is expected to add 140,000 over the next couple of months. 

Quickly, the household survey, which is a different survey from the one used to calculate the monthly payrolls figures as it includes the self-employed, showed an increase of 308,000 jobs.  This follows +541K in January and these two months offset the 976K plunge during the previous three months.  This household survey is used to calculate the unemployment rate. 

And speaking of which, the unemployment rate held steady at 9.7% in February (was expected to tick up to 9.8%).  Roughly 340,000 workers re-entered the labor market, so the increase in household employment kept the jobless rate from rising.  I continue to believe that the jobless rate will move to 10.5% before is begins to very slowly trend lower – that is, I don’t believe the increase in household employment will be enough to offset the large influx of workers coming back in to look for work as they feel better about their prospects for finding a job. 

The measure of under-employment, or the U6 unemployment rate – which includes those working part-times because can’t find full-time work along with those not looking for work because they are discouraged, rose to 16.8% from16.5% in January – still down from the peak of 17.3% in December.

The long-term unemployment figures improved a bit.  The percentage of those unemployed who have been out of work for at least 27 weeks remained at more than 4 in 10, but it did tick down to 40.9% from 41.2%. 

In addition, the average duration of unemployment slipped to 29.7 weeks from 30.2 in January – first decline since November 2008.

So, we continue to muddle around here, losing jobs each month but these are not at all statistically significant numbers – effectively the readings of the past two months are zero in an economy with 130 million payroll positions.  The revisions over the next couple of months should give us a clearer picture if the weather created more havoc in this latest reading than this initial look shows. 

I continue to believe we’re going to see a mild level of monthly job growth occur over the next couple of months, but I have trouble seeing how we get durable (consistent lasting for a year or more) monthly jobs gains of 250-300K that is necessary to move the unemployment rate substantially lower over the next year.  The initial jobless claims data, which is stuck at the high level of 470K per week, is not suggesting much job growth is about to occur – and the jobless claims figure has a great track record of predicting labor market trends.

Consumer Credit

In a separate report, the Federal Reserve reported that consumer credit rose by $5 billion on a seasonally-adjusted basis, it was expected to decline $4.5 billion.  This marks the first increase since January 2009 and ends the consecutive months of decline record at 11 months – the longest since 1943. 

The figure was fueled by non-revolving credit, such as car loans and student loans, which rose $6.6 billion.  Revolving credit, or credit-card debt, fell $1.7 billion (16^th straight month of decline) and will continue to do so as credit lines will keep getting cut (a result of high delinquency rates) and consumers work to pay down debt.  Although it’s kind of hard to reduce debt when more are borrowing to buy cars.  The average maturity on a car loan currently stands at 63.5 months and the loan-to-value at 90%.

The household deleveraging process has a ways to go.

Have a great day!

Brent Vondera, Senior Analyst

Phone: 636-449-4900