BLS Pleasantly Surprises, What's Next? - Real Time Insight
May 03 2013 - 7:40AM
Zacks
The unemployment rate ticked down
to 7.5%, the lowest it's been since December 2008. This was made
possible by 165,000 jobs created in April, according to the Labor
Department. Estimates in the beginning of the week were for 155,000
jobs, but expectations came down throughout the week after the big
disappointment in the ADP reading to 135k.
Perhaps the bigger news and the
true motivator for both the markets and for confidence were the
revisions, which added an additional 124,000 jobs in March and
February than previously reported.
The number of new jobs created in
March was revised up to 138,000 from 88,000 and February's figure
was revised up to 332,000 from 268,000. With the new data, the
number of jobs created in February was the highest since November
2005 for any month if you back out temporary Census bureau
hiring.
One bit of data that I tend to
focus in on in particular is the Labor Force Participation Rate,
which remained steady over the last couple months. A dropping
participation rate can skew the data and lower the unemployment
rate artificially as workers are leaving the workforce. But
the fact that it has remained relatively stable helps with assuring
that jobs are actually being created and unemployment is on the
decline.
Also in the data, we saw that the
average workweek fell two ticks in April to 34.4 hours. Longer
workweeks are usually a sign of a strong economy and it is
important to note that workweek length remains near a pre-recession
high. But are workweek lengths high because companies are
trying to squeeze every last drop of productivity from
workers? Or maybe workers themselves are working harder
to keep their jobs?
As a realist, I can't help but
speculate the positive and the negative. When I look back at
the last 3 years, May has been the high point of the Jobs number
and the stock market and I can’t help but look at those data and
think that history could be repeating itself.
Over the last three years, you
should know that overall manufacturing PMI has been decreasing on
average and that services PMI tends to peak right around the same
time as the employment numbers in May and then drop off.
There are a plethora of additional
factors, including market valuation and earnings growth, that seem
to be playing out just as they have at least in the past 2, if not
3 years that point to this being the top of the market and the
employment strength for the year.
What Do You Think Happens
to Employment and the Stock Market After May?
1. Employment peaks with the stock
market and both begin to move lower.
2. Employment flat with the stock
market flat
3. Employment flat and market
continues higher
4. Employment continues to improve
and markets move higher
5. Employment continues to
improve, but markets selloff because the Fed is more likely to back
away
6. Other
**Please briefly explain your
thesis.
I believe this is the peak in
employment growth for the year (at least until October). I believe
that the coming months will be must less robust in terms of
employment growth with several misses; this will drive most richly
valued stocks lower (the broad market). It seems to me that too
many data are pointing to slowdown and yet valuations are richer
than they have been in the last three years. I this it will be
increasingly difficult for traders to justify these levels,
especially with negative revenue growth.
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