Friday, March 5, 2010

Labor Data Pleases the Market - Gap Up it Will Be

Interestingly the futures, after being flattish last night around 1 AM, were quite strong even in the 8 AM hour before the labor data was out.  This would not be unusual in that it's been the pattern for much of the past year, but ahead of data "no one knows" it sure was interesting.  Even more enlightening, I was under the impression the White House only knew of the data 24 hours in advance but apparently the goods producing portion of the report is known Monday.  So if you were the most highly connected investment bank on the planet, with hordes of your ex-employees employed throughout government.... well as Gordon Geeko says:'

The most valuable commodity I know of is information.

Either way we are set up for a nice 4 months or so ahead on the labor front.  As we've been saying for a few months, the public sector workforce (federal) is completely protected from job losses, and the state level is the beneficiary of stimuli after stimuli to offset loss of tax revenue.  The private sector has been bled out for a few years straight and I have been surprised to see the weekly claims burst back towards the 500K level the past 2-3 weeks since I did not think there was much blood left to squeeze from that stone.  So even without the census workers coming online, you'd expect after 2+ years of epic job losses, to start seeing some gains due to conditions listed above.  We can now expect 200-350K (maybe more?) type of gains in the next 3-4 months, with the census workers flooding in. (keep in mind the US needs 125,000 gains each month just to keep up with population growth)  The question now becomes when do all the people who have dropped out of the labor force the past few years (causing labor participation rates to fall to historical lows) return?
As for today's data - with the caveat that this will all be revised 10x to Sunday in the next year - 36,000 jobs lost with a 9.7% unemployment rate.  If you measure this by standards we used pre early 1990s its roughly a 13.7% unemployment rate and if those discouraged workers start flooding back into the job market, you actually could see a dichotomy of job gains while the unemployment rate rises in the months to come.  Remember, in America if you give up, and have not been looking for a job for 4 weeks you are not considered unemployed...hence when all these people see all the job creation on the news, they will go start looking for jobs again.  Therefore, getting them back into the unemployment figures ...which is why the unemployment rate could actually rise even as there is net job creation.
The only data points we can take serious with all the government hocus pocus are hours worked, wages, and temporary workers.
Average workweek fell to 33.8 hours from 33.9 hours. That's negative but might be weather related.

Wages increased by 0.1%, below the 0.2% seen last month.  Certaintly would be preferred to be going the other way.
Temporary workers increased by 48,000; a bit off the pace of the past few months but perhaps weather slowed it down.  The bigger question (which we won't know until we look back in perhaps a year or two) is whether temporary work a new structural change in the US economy whereas "just in time" labor has become the new norm [Feb 16, 2010: USA Today - Use of Temps to Fill Jobs May No Longer Signal Permanent Hiring].... or if this is the more traditional increase in temp work we see at the beginning of each hiring cycle.
So all 3 of these items were worse than last month, but aside from wages could be blamed on weather.  The lack of wage growth was also seen in yesterday's productivity report which again surged nearly 6% while year over year labor unit costs dropped roughly 5%.  This doesn't bode well for US workers, but is great for US corporations. 
"Underemployment" jumped back to 16.8% from 16.5% ....the number of part- time workers for economic reasons climbed to 8.8 million in February from 8.3 million the previous month.


In summary go forward, March should be a pretty huge number as any weather related losses from today's report will get pushed into the report 30 days from now.  Plus a load of census workers.  Then more census workers in the few months after that.  Public sector workers will continue to be protected via taxpayer money, and then we have to wait to see if the private sector can show gains late summer to next fall. (i.e. take the baton)  Weekly jobless claims need to fall closer to 400K a week to reflect real job growth in the private sector... which is why the ramp up the past few weeks has been quite confusing.  One would think there are very few people left to fire this many years into the job carnage.

As for the S&P 500, 1109 as the floor will now be moved up to 1125, with the same strategy... using that as a floor and being a buyer above.  After the morning gap, it will be interesting to see how the bulls act...  oh yes, Magical Monday lies around the corner.  Over S&P 1130 I see no real resistance until January highs on the S&P 500, and the Russell 2000 is already over 2010 highs.

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