There was also talk that the market was helped by speculation the EU would come up with a plan for Greece’s budget this weekend at the G7, this should be interesting. But it seemed to be more on the consumer credit news as the market’s about face occurred directly after that release. Now that the meeting has come and gone, we see it was more talk than anything else, as is usual. The sovereign debt story is not over; there will be a default or two and plenty of close calls. This is the nature of things coming out of such a deep global contraction, government spends like mad to combat the problem and that combines with a slide in tax revenues to widen budget gaps to levels that cause additional problems.
Total consumer credit fell just $1.7 billion in December after a record $21.8 billion decline in November – records go back to 1943. Revolving credit (credit card accounts) continued to decline, extending the record streak to 15 months – this is likely to continue for a while as credit lines run off of delinquency models. What helped the figure was the non-revolving segment, basically car loans. With loan terms averaging 3.26% during the month and maturity at 64 months…and loan-to-value at 92% -- giddy up!
Commodity prices continue to get hit pretty hard. Oil got slammed down to $70/barrel before recovering to $71.19 on Friday, down 8% in three sessions; gold was back to $1,052/oz. before jumping this morning; copper is down 7.5% since Wednesday and 18% from its recent high.
As the flight to safety has returned, the dollar is the beneficiary – up above 80 on the Dollar Index (DXY) for the first time since July as it was coming off of its crisis high of 89 on the DXY. Treasury securities are back in vogue as well. Man, anyone who went short Treasuries thinking it was a no-brainer has gotten crushed thus for in 2010.
Market Activity for February 5, 2010
January Jobs ReportThe January jobs report printed numbers that set up an environment for very contentious analysis. Those who believe this recovery is normal in nature viewed the report with an optimistic hue, while those who understand that recoveries following credit/balance sheet-driven recessions are not at all normal viewed the report with skepticism.
For me, and I’m undoubtedly in the latter camp, I don’t look askance at the report, but would rather wait and see the subsequent months confirm what I think is going on – a large divergence between the household and payroll surveys due at least partially to a lot of people who were working in the construction sector now venturing out on their own, adding to the roles of the self-employed. Many of the nearly two million jobs that have been lost in that sector are not coming back, not anytime soon – for all intent and purpose they have been structurally eliminated and those formerly in the sector are beginning to realize this. The household survey picks up these self-employed, the payroll survey does not.
So let’s get to the specifics, and we’ll begin with what is more familiar to most people: the payroll survey. The Labor Department reported that 20,000 payroll positions were cut in January (economists had expected a 15K increase). Whether, 20K up or down, it doesn’t matter because this is a statistically insignificant level. What is statistically relevant is the downward revision to the December reading, which showed 150K jobs were lost; it was initially reported as decline of 85K last month.
In fact, February brings with it annual labor market revisions and those new readings showed that 8.4 million payroll jobs were slashed offer the past two years, it was previously believed that 7.2 million payrolls were lost. BTW, the Bureau of Labor Statistics “birth/death” model estimated that more businesses open than closed in 2009 for a net 1.79 million jobs. I’ve never questioned this B/D model, but it is a little hard to believe that the worst recession in the postwar era saw more businesses open than close, so it’s not out of the question to wonder if well more jobs were lost than even 8.4 million. I’ll leave it at that.These numbers are obviously backward looking, they are in the past, so one shouldn’t dwell on them. What it does inform us of is that the repair that’s needed within the job market will take even longer to accomplish than previously expected. If a meaningful degree of repair in going to occur within the next two years then we are going to have to see even stronger monthly job growth and GDP figures than it normally takes. Normally, it takes at least 120K in monthly job gains to keep the jobless rates steady and something closer to 200K/month over a period of time to bring it lower. Those number may have to be greater now, possibly 150k/month to keep it from rising and 300K/month to get the jobless rate back down to 8% in 18 months time.
Anyway, back to the monthly numbers. In terms of industry, goods-producing industries shed 60,000 payrolls last month. Manufacturing actually added 11,000 jobs (first time in more than two years and much better than the three-month average of -23K). Construction cut 75,000 jobs (considerably worse than the three-month average of
-47K). I don’t believe one can blame this on the weather as was the valid case in December. It is more a function of the accelerating pace of commercial construction deterioration. But, we’ll see over the next couple of months which view is correct– if it was the weather, construction employment should bounce with vigor in the coming months and vice a versa.
The service-providing industries added 48,000 jobs in January after a downwardly revised -69k in December, which was initially reported as a 4K decline. Business services added 44,000 jobs (in line with the three-month average of +45K). Retail trade added 42,000 jobs (much improved from the -8K on the three-month average). Trade and transport added 15,000 (nice improvement as the three-month average is -18K). The financial sector cut 16,000 jobs (about in line with the -10K monthly average over the past three months).
Temporary positions rose 52,000, probably mostly within the business services sector, and are up 247,000 since September. This is good news as it usually indicates more permanent employment is on the horizon. This is the expectation, but the looming question remains to be seen; Will the gains be strong enough and durable enough to bring the jobless rate lower in a reasonable amount of time? Further, as I’ve suggested on more than one occasion, the reliability of indicators that have proven accurate in the past may not be so true this time. Temp. employment has risen very nicely, but in this environment one has to be cautious of firms’ willingness to turn these workers into permanent employees (and thus take on the benefit expenses that accompany a permanent worker) like has occurred in the past.
The government cut 8,000 jobs. The Federal government added 33K, but states and local cuts offset this increase.
So now we get to the household survey. This is the survey that is used to calculate the unemployment rates. For newer readers, the payroll survey (which calculates the number of payroll jobs gained or lost) is the monthly jobs number you read in the headlines. The household survey is used to calculate the unemployment rate and it captures the self-employed.
The unemployment rate fell to 9.7% from 10% in December. Economists had expected the rate to hit 10.1%.
The household survey showed a gain of 541,000 jobs last month, after the December decline in 589,000. This is a volatile measure (as the prior sentence illustrates) and has bounced all over the map over the past few months. This pick up for January is why the unemployment rate fell to 9.7% from 10% even as 111,000 people came back into the labor force – meaning they had looked for work in the four weeks that this monthly survey captures.There is no way of knowing just yet whether this bounce in household employment is the beginning of something. I’ll repeat, it will take several months of a trend to be established to confirm whether we’ll muddle around at low levels of jobs growth or something more substantial will take place. I think what occurred via the large pick up in household employment is that enough of those out of work in the construction sector decided to become self-employed – one man shops of carpenter, electricians, etc. Thus, as they stated via the survey that they were out of work in December, they now stated they were working in January. Again, we’ll need some consistency in the readings over the next few months to confirm what is going on.
The U6 unemployment rate, which captures the officially unemployed plus “discouraged” workers (those that didn’t look for a job during the survey period because they believed their chances of finding one was low) and those working part-time because they couldn’t find full-time work, fell for just the second time in two years. U6 came in at 16.5%, meaningfully lower than the 17.3% in December as those who want full time work but are working part-time for economic reasons fell to 8.3 million from 9.2 million in December.
Unfortunately, the long-term jobless rose to a new record as the percentage of those unemployed for at least 27 weeks rose to 41.2% from 39.8% in December. More than four out of 10 unemployed persons out of work for more than 27 weeks.
In addition, the average duration of unemployment extended to a new record of 30.2 weeks from 29.1 weeks in December.
The average hours of production per week ticked up to 33.3 in January from 33.2 after hitting the all-time low of 33.0 in October. This number will have to rise to 33.8-34.0 before any meaningful hiring takes place. The 10-year average is 33.7.
So again, this report is quite conflicting. There were positives, such as the unemployment rate decline even as the participation rate rose, the rise in temporary employment, the continued easing in payroll losses (three-month avg. is just -35K/month, that was -220K/month just three months back) and the tick higher in hours of production.Yet, we’ll need to see the jump in household employment be confirmed in the coming months, large questions remain as to whether this economic environment can produce the job growth needed to repair a meaningful portion of the 8.5 million payroll jobs lost over the past two years, and the long-term unemployment situation continues to deteriorate.
I think this report leaves more questions than anything and it doesn’t tell us much in terms of new information. Remember that we’ll have 700,000 2010 census workers (a two-month gig) being hired by early summer. This is going to cause distortions and make analyzing the data even more contentious among economists.
Have a great day!
Brent Vondera, Senior Analyst
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