U.S. stocks rallied in early trading on Friday following a better-than-expected jobs report.  However, the gains were undercut by a European debt contagion that just isn’t going away.  (And this is true with so many things these days; such is the case when governments don’t allow the markets to get on with things, only delaying the inevitable – look no further than our own housing market. 

All 10 of the major industry groups closed higher, led by industrials, basic material, health care and utilities.  Consumer-related and telecom shares were the laggards. 

For the week the broad market gave back 1.72% after two weeks of gains.  The decline puts the S&P 500 smack dab at 1340, which is two-points shy of that February 18 level – a mark that was finally surpassed (briefly) on April 26. 

Say hello to the return of the drachma.  Here we are exactly a year since the Greek government debt problem began to rage and introduced us all to a new acronym – the PIIGS – and the problem has hardly disappeared.   Bottom line: Greece is moving closer to that default/restructuring we’ve been talking about for a year now.  What scared the market on Friday was an article in Der Spiegel that talked of the Greeks planning to leave the eurozone – as they would surely then devalue their currency to oblivion in an attempt to inflate away (along with whatever remains of their economy) their debt problems.

The Dollar Index rose on Friday, which marks the fourth session of gain in five.  Commodity prices continued their slide on Friday, 9% below the post-crisis peak hit a week ago. 

One wants to get happy about declining input prices, particularly the $15/bbl decline in crude.   But it took negative news to send oil prices lower (that bad ISM number followed by the 474K initial jobless claims).  Now if the Fed were to back this high energy environment wouldn’t necessarily be the case, but they’re not about to as Bernanke is monetizing the debt.   That’s a skeptical view, but until the government begins to make the tough choices that are necessary to get out debt situation in check, what else is one left to surmise by Bernanke’s large-scale government debt purchase program? 

Market Activity for May 6, 2011

Sector Activity for May 6, 2011

April Jobs Report

The Labor Department reported that payrolls rose 244,000 in April (+185K was expected) after an upwardly revised +221K in March.  Private-sector payrolls rallied 268K (200K was expected), which is the best reading we’ve seen for this cycle, after the 231K increase in March.  The prior two months (and I’m talking the total payroll number, both government and private) were revised up by 46K, which brings the three-month average to 233,000/month – up from 174K/month in the prior three-month period. 

Both goods-producing and service-providing payrolls increased, but as we talked about last month way too much of the gains are coming from the education/health and leisure/hospitality segments – these two segments accounted for 40% of the past two months worth of payroll increases.

Goods–producing industries increased payrolls by 44,000 (shy of the 54K three-month average) as manufacturing added 29K and construction added 5K.  Factory employment is up an average 29K/month over the past three months. 

Service-providing industries added 224,000 payrolls (nicely above the three-month average of 199K/month).  Trade & transportation led the way, adding 71,000 payrolls (three-month is 40K) – caveat: the jobless claims report showed this was a hard hit area last two weeks); retail added 57K; business services added 51K (all permanent as temporary hiring was down 2K). 

These are good numbers, but the education/health (up 49K) and leisure/hospitality (up 46K) is accounting for too much of the gains – 42% of the service-sector jobs. 

Why do I say this?  The former is going to eventually feel the whack of slashed state budget spending.  The latter is low paying jobs that don’t do all that much to fuel wages, and we’ve seen hourly earnings growth wane over the past few months as a result. 

Government jobs declined again, get used to that drag.  

The official unemployment rate rose back to 9.0% in April (hit 8.8% in March) as the household survey (which unlike the payroll survey includes the self-employed) printed a 190,000 decline – the self-employed segment was down 172K. The household survey has jobs up just 117K/month over the last three months and just 98K/month over the past six months. We have yet to see re-entries really come back into the jobs market as the labor force increased only 15,000. 

The long-term unemployment figures improved, but really just from big deterioration in March.   

The average duration of unemployment (in weeks) fell to 38.3 weeks on average – that’s down from the all-time high of 39.0 weeks in March but up from the 37.1 weeks in February.

The percentage of those unemployed that have been out of work for at least six month fell to 43.4% from 45.5% in March, but just marginally better than the 43.9% in February. 

The U6 unemployment rate rose to 15.9% from the 15.7% in March – this matches the February reading.  The number increased as more workers were working part-time because they couldn’t find full-time work in April.   Full-time employment slid 290K in April. 

Average hourly earnings were weak again as they rose just 0.1% for the second month.  The three-month average is 0.2%, down from 0.3% in the previous three-month period.

Weekly hours worked were unchanged for a second-straight month at 34.3 weeks.  We need to see this increase to 35.0 weeks, which doesn’t seem like a lot but it is. 

As we talked about last week after the ADP employment report, one could see the April jobs number beating expectations – the official jobs figure lags that ADP number and so there was some catch that needed to occur.  However, the signal that jobless claims have sent over the past month has not been good and we’re likely to see payrolls gains decelerate to the 150-175K range.  The latest turn down in the household survey also provides evidence of this slowdown.

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