U.S. stocks withstood disappointment on Friday after a much-hyped December jobs report posted lower-than-expected results (and half traders’ whisper number); the major indices were little changed.  Couple this with renewed European debt concerns brewing again and the resilience within the equity market has been impressive.  One wonders where stock prices would be without the old Bernanke backstop. 

Financials, telecoms and consumer staples led the broad market lower.  Energy utilities and industrials were the three of the major 10 industry groups to close the session higher. 

For the week, the broad market advanced 1.1% -- a move that was all accomplished during Monday’s session as the S&P 500 Index closed the five-day stretch smack dab on top of Monday’s close.  The Dow Industrial average ended the week up 0.8%; the NASDAQ Composite rallied 1.9%; the S&P 400 (mid cap) added 0.4%; and small caps ended mixed as the Russell 2000 gained 0.5% while the S&P 600 closed the week flat. 

The Treasury market rallied again, sending 2, 5, and 10-yr yields back to where they started the week – completely erasing Tuesday’s spike. 

Well, so much for that rebound in the Dollar Index (DXY) being about stronger economic growth.  The DXY closed up Friday even after the disappointing jobs number.  The recent rally in the U.S. dollar has much more to do with another round of euro weakness (which broke below the euro/dollar pair of 1.30 again, to close deep into the 1.29 handle) and what sure looks like another round of overall European debt worries. 

In fact, the yield on Portugal’s 10-year government note has surpassed 7%, a level that government has cited as too much for the economy’s growth potential to handle – and this is with the ECB’s outright purchases of government bonds and accepting this junk as collateral from European banks.  Just as one might wonder where U.S. equity prices would be without the Fed, one also wonders how high in the double digits European peripheral debt yields would reside without the ECB’s actions and the EU/IMF bailout fund. 

Market Activity for January 7, 2011

December Jobs Report

Well, we’ll keep waiting.  The Labor Departement reported that total payrolls rose just 103K in December (150K was officially expected with a whisper number around 200K) and just 113K from the private sector (officially expected at +175K).  The November results were revised up to show payrolls increased 71K from the previously reported 39K, but that’s so insufficient it’s pathetic. 

Take the three-month average, which is the way to look at these things as the month-to-month figures can be volatile, and we’re at 128K/month for both total and private-sector payroll growth when we need 300K for a year or more to absorb all of the people who will return to the labor force, plus new grads and population growth. 

The good news is that full-time employment rallied in December, up 557K, which means part-time job losses is what weighed on December’s results.   This ends a three-month period of decline that pushed full-time employment down by 618K, yet the segment hasn’t advanced during this timestep.

The unemployment rate did fall meaningfully, down to 9.4% (expected to come at 9.7%) from 9.8%, as the household survey posted a 297K increase in jobs – right in line with the ADP number.  But this comes off of a 469K decline in the previous two months.  Thus, the three-month average is -57K.  (The payroll figure runs off of the establishment survey, which is a survey of larger businesses.  The household survey includes the self-employed and is what’s used to calculate the unemployment rate.)  The drop in the jobless rates was assisted by 260K workers removing themselves from the labor force, the third month of decline. 

The fact that people continue to remove themselves from the labor force is discouraging.  We must still get through the period in which these workers come back and look for work again when they feel the market is more inviting, which will drive the jobless rate higher even as the labor market improves. 

The segment that posted the largest payroll increase was leisure/hospitality, which added 47K positions – although, these aren’t exactly the most high-paying of jobs (the segment averages $338 per week on average, 43% of the average for all sectors).  Next was education & health, which added 44K.  So these two segments accounted for 88% of December’s payroll increase. 

And for all of the talk about manufacturing, the sector could muster just a 10K increase in payrolls, and that comes off of four months of losses that totaled -44K.  And the hours worked in the factory sector ticked down after no change in the previous month with average weekly hours dropping for a second month.  I don’t know, this stuff doesn’t jibe with what those regional and ISM numbers have printed. 

The long-term unemployment numbers were mixed.  The U6 unemployment rate (which includes marginally-attached workers and those working part-time because they can’t find full-time work) fell to 16.7% from 17.0%.

However, the average length of joblessness rose to 34.2 weeks from 33.9 in November.

And the percentage of the unemployed that are out of work for at least six months (the longest period the Labor Department tracks) popped 2.4 points to 44.3%. 

Average weekly hours for all sectors held at 34.3, unchanged for three months, and hourly earnings ticked up 0.1%, matching the three-month average. 

The following charts were posted by the WSJ on Saturday:

On a brighter note, we should expect a higher revision to this December reading when the January report is released in a month – that’s been the trend and if the lower jobless claims of the past couple of weeks weren’t a fluke they also suggest a higher revision.  (To explain that, the jobless claims moved lower in the final two weeks of the month, but this initial look at December employment doesn’t capture the back-half of the month all that well.) 

But I’ll repeat the statement from last month: 

We continue to see economists/analysts get very excited about things, only to be let down.  Recent jobless claims data had many people thinking we’d move to a higher level of job gains; this report certainly diminishes that outlook. 

Households remain too indebted and that means the deleveraging process will continue to play out.  The government (monetary and fiscal) is doing many things to get people spending more, and it is working on occasion.  But overall, final demand will remain weak and businesses just aren’t going to substantially add to costs (payrolls being the largest cost) as it will kill the bottom line, particularly since they also have higher input costs to deal with.  

So we continue to wait for that initial 300K private-sector payrolls number that accompanies nearly every substantial job market recovery.  Let’s hope we don’t have to wait too much longer.

Consumer Credit

Also out Friday was the Federal Reserve’s latest report on consumer credit, which showed it’s making comeback despite the 27^th straight month of credit-card contraction.  For November, consumer credit rose $1.3 billion (more than twice the level expected) after an upwardly revised $7 billion increase for October (nearly double initially reported).  The two-month rebound appears to have closed out a cycle in which consumer credit (this excludes home loans) declined in 21 of the past 24 months. 

While the revolving loan segment (credit cards) continued to contract in November, non-revolving is up for four-straight months, just about hitting the 2008 peak.  This segment is largely made up of auto and student loans – student loans are on fire, up 155% over the past 16 months.  Why enter the job market when you can just stay in school?  But eventually, most of these students graduate, and must look for a job. 

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Have a great day!

Brent Vondera, Senior Analyst

Phone: 636-449-4900