U.S. stocks spent nearly the entire session in positive territory on Friday but a slow loss of momentum in the afternoon, which accelerated in the final minutes, resulted in a fractional loss for the broad market.  The NASDAQ Composite, mid and small-cap indices did manage to end higher.

In early trading traders appeared to be fairly upbeat about the November jobs report, which had its good and bad points, but as the session wore on those negatives eroded sentiment.  There was also early optimism regarding Europe but that broke down too as those bourses closed fairly ugly.

Financials and consumer discretionary shares were the only sectors to close in the green.  Health care, utilities and basic materials were the biggest laggards.

For the week, the broad market jumped 7.4%, which nearly erased the losses of the previous two weeks.

More on that jobs report below the click, but on the European scene, the idea that the ECB funnel money through the IMF in order to directly participate in government-bond auctions has made its return – and of course it has as this is the easy (and likely damaging with regard to future problems) way out.   It was just the day before in which EU ministers were apparently entertaining this notion to set up redemption funds in order to force scofflaw government to pay down their debts – parental guidance from Germany.

Alas, that appears to have been thrown out the window and here there go again, running to Draghi to print money, effectively laundering it through the IMF because by law the ECB cannot participate directly in bond auctions – they can only buy on the secondary market, after these securities have already begun to trade.

I’ll be stunned if the Europeans get this thing right.  That is, implementing a strategy that allows for future and sustained growth rather than kicking this can further down the road and leading to a Japanese-style funk, or worse.  But we’ll have to wait for later this week as the next summit will be held on December 9.  Many people who have set this date as the day of reckoning.

So we push an epic moment one month forward.  November 9 became an epic date in 1989 as that was the day the Berlin Wall came down, changing European history.  The next epic date may just be December 9 – hopefully I’m stunned and it results in a cheerful celebration, as was that day in November 22 years ago.

Market Activity for December 2, 2011

Sector Activity for December 2, 2011

November Jobs

The Labor Department reported that total payrolls rose 120,000 in November (about in line with the 125K expected, but the whisper number was closer to 200K after that 206K ADP report), but the prior two months were revised up nicely by 72K.  As a result, the three-month average got bumped up to 143K/month -- would have been 119K/month without the revisions.  This of course is less than half of what we need per month, and as far as the eye can see to get the jobless rate down to a level that is at least respectable, but it is improvement.

Private sector payrolls rose 140K, led by the 146K pick up in service-providing sectors.  This puts the service-sector average at 150K/month, which should be much better with the seasonal hires for this time of year.  It was led by a 58K increase in trade & transport payrolls (50K of which coming from retail).   Goods-producing sectors shed 6K as manufacturing payrolls rose just 2K, mining added 4K and construction cut another 12K.

The official unemployment rate fell by the most in a year as it came in at 8.6% (down from the 9.0% in October and the lowest level since March 2009 when it was still rising).  There was a good and bad story behind this decline.  First, the good is that the Household Employment Survey (with which the jobless rate is calculated) posted a 278K gain in jobs and that rounded out a four-month streak of 1.28 million more jobs.  The bad news is that also helping the jobless rate decline was 315,000 people removing themselves from the labor force.

So, the number of unemployed fell by 594K, but more than half of the decline was due to removals from the labor force.  What you want to see is this number of unemployed come lower even as more people re-enter the workforce.  When it occurs in the manner it did, it just means that more people will eventually have to re-enter and it will take an even greater increase in job creation to absorb this re-entry rate in the coming months/years.

Looking at a labor participation rate of 64.0%, one can surmise that roughly 4.5 million people will be re-entering just to get the participation rate back to the modern-era norm (and that’s putting it kindly as the actual number of workers who currently want a job – these are among people who have removed themselves from the labor force because they haven’t looked for a job in four weeks – stands at 6.2 million).

The under-employment situation improved as the U6 unemployment rate fell to 15.6% from the 16.2% in October.   What drove the rate lower was a nearly 400K reduction in the number of people working part-time for economic reasons (there previously couldn’t find of job).  We’ll have to wait a couple of months to see if there really is something behind this move, it may just have been more people getting bumped up to full-time hours because of the holiday season.

The long-term unemployment problem deteriorated.

The average duration of unemployment rose to 40.9 weeks from the 39.5 in October – 10 months!

Those out of work for at least six months rose to 43.0% from 42.4% as of October – so of all of the 13.3 million officially unemployed, 43% (5.7 million people) have been out of work for at least six months.  And the number is actually about double that figure as it does not count the people who have removed themselves from the labor force over the past few years.

(There are three-primary reasons for this long-term jobless situation:  One, economic growth is too weak; two, firms are desperate to hold onto their profit margins as there is no room for error in a weak environment; three, offering jobless benefits for up to 99 weeks creates a disincentive for people to accept a less-than-desirable job.)

Average hourly earnings fell 0.1% in November (expected to rise 0.2%).  Over the past 12 months, this figure has increased just 1.8% -- about half the rate of inflation.

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Have a great day!

Brent Vondera, Senior Analyst

Phone: 636-449-4900