U.S. stocks closed lower for a second-straight session on Friday, flattening the bounce made over the previous few sessions, to end down for the week.  An August jobs report that showed no gain in payrolls is what put the screws to Friday’s session.  I want to say some of the decline was due to a seriously troubled European banking and economic scene, but this has been known for a while so you’ve got to blame it on the jobs reading.

Utilities, consumer staples and telecoms were the places to hide, as the former two have been year-to-date now.  Financials got pummeled by nearly 4% with industrials and consumer discretionary share not faring all that much better.

The financials were led lower by the news that the FHFA (conservator of Fannie and Freddie, the GSEs) is preparing to sue the major banks as they attempt to recover funds for the GSEs due to poor or outright unlawful lending practices.  While lending standards were clearly absent back when the housing market was hot and the GSE’s appropriately seek refunds to shoddy loans, in a “too big too fail” world the very government that sues them into oblivion will be bailing them out again.

The commodity complex traded lower even as half of the components of the CRB Index gained ground.  Largely, it was a meaningful decline among the energy components that pushed the overall index lower – crude, gasoline and natural gas all down.  Problem is, it’s not exactly helpful when energy prices are pushed lower merely because of weakening economic fundamentals.

Market Activity for September 2, 2011

Sector Activity for September 2, 2011

August Jobs Report

The Labor Department reported that there was no net payroll growth in August (a 68K increase was expected) and the previous two reports were revised down by 58K – obviously if this trend continues to three months then August will be negative and zero will actually look good.

Private-sector payrolls rose just 17K (expected at 95K), which is partially a function of the Verizon strike in early August.  However, that only accounts for 45K, so even adjusting for the strike the number still would have been woefully insufficient to what we need.  The three-month average on total payrolls is down to 35K and for private-sector it’s down to 83K.

Good-producing industries cut payrolls by 3K as manufacturing shed 3K (brings that three-month average to just 15K/month) and construction cut another 5K.  Mining continues to add jobs.

Service-providing industries added just 20K positons as trade/transport, retail and information technology all cut payrolls.  Financial services, overall business services and education & health care cushioned the blow with increases.  You can exclude the education/health sector to get a decent view of what smaller firms are doing – that number gives you just 34K in private-sector monthly job growth over the past three months.

The government cut another 17K (the three-month average is -48K/month and has plenty more to go) as most of the cuts came via state and local governments.

The unemployment rate held steady at 9.1% as those entering the labor force pretty much matched up with the job gains within the Household Survey (this is the survey used to calculate the unemployment rate – besides being different from the way it surveys it also includes the self-employed).  Household employment rose 331K, which nearly kept up with the 366K that re-entered the workforce.   Household employment has averaged -50K/month over the past three months.

The U6 unemployment rate ticked up to 16.2% from 16.1% in July -- this measures under-employment as it includes those working part-time involuntarily and also includes those marginally attached to the workforce (those who have looked for work sometime over the past 12 months but not over the last four weeks).

The long-term unemployment picture improved slightly but remains abysmal.  The average duration of unemployment ticked down to 40.3 weeks from 40.4 in July.

The percentage of those unemployed who have been out of work for at least six months fell to 42.9% (or 6 million people) from 44.4% in July.  Some of this improvement likely occurred as emergency level jobless claims (those that extend out to 99 weeks) have begun to expire.  The very long time in which we’re providing jobless benefits is at least partially responsible for the long-term jobless problem – at the margin you’ll have less urgency to find work, or those on the dole will simply refuse working a less-than-desirable job.

Average hourly earnings fell 0.1% (down 3 cents to $23.09) and the year-over-year number is down to a 1.9% gain – at a CPI of 3.6% y/o/y that’s an insufficient gain.  Weekly hours worked slipped to 34.2 from 34.3 in May – so employers didn’t only refrain from adding to payrolls, those currently employed worked slightly less hours.

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Have a great day! 

Brent Vondera, Senior Analyst

Phone: 636-449-4900