UGLY JOBS REPORT - WHAT IT REALLY MEANS
The jobs number came in much worse than expected with nonfarm payrolls climbing by 142,000, well below the 225,000 estimate. The July number was revised slightly higher to 212,000 from 209,000. The June number was revised down to a gain of 267,000 jobs from an original 298,000. So far in 2014 the economy has added an average of 215,000 jobs per month, which is the fastest pace of hiring in over a decade. In 2013 the pace was 194,250 jobs per month.
Bottomline: The number is ugly anyway you cut it. And the downward revision of 28,000 jobs during June-July is also troubling. The one argument the government can throw at us is that the pace this year is better than last year, however the economy is years removed from the great recession and job creation should be much higher at this time. The chart below shows the number over the last 10 years and the highlight (or lowlight) is that the trend over the last three years has been sideways.
The unemployment rate fell to 6.1% from 6.2% last month, but at this point the number is of very little importance.
Bottomline: Of all the numbers that are released on a monthly basis the "headline" unemployment rate is the least important to me. It is skewed lower due to a large number of American dropping out of the workforce. In short, ignore the number just as the Fed is.
In-line with expectations with growth of 2.1% year over year and up 0.2% month over month. Average hourly earnings rose 6 cents to $24.53 in August.
Bottomline: One of the most important stats is wages. It is one thing to have a job, but if wages are not increasing it will weigh on consumer spending. A measly 6 cent gain last month is not enough to send the consumer (70% of the economy) out to the malls to spend extra money because they do not have an excess of disposable income. Another number the Fed watches closely.
Remained steady at 34.5 hours.
Bottomline: Not a big surprise here
Labor Force Participation Rate
Fell back to its multi-decade low of 62.8% from 62.9% last month. This is due to more Americans dropping out of the workforce (64,000) last month.
Bottomline: One of my favorite numbers rises again to match the worst level in decades. There are simply too many Americans not participating in the work force. This number needs to improve before the Fed makes a move.
The U6 Unemployment Rate
A measure of those marginally attached to the labor force or those employed part time for economic reasons improved to 12% from 12.2% last month. Also referred to as the underemployment rate.
Bottomline: This was one of the bright spots, but it could have been affected by more Americans dropping out of the workforce.
The number of long-term unemployed Americans fell to the lowest level since January 2009. Americans out of work for at least 27 weeks totaled 2.96 million.
Bottomline: Another positive number as the long-term unemployed were able to get back to work. This group has been an issue for the economy as they depend on a large amount of government entitlements.
Manufacturing added no jobs in August after adding 28,000 in July. Construction added 20,000 jobs, its 8th consecutive month of gains. Retail lost 8,400 jobs.
Bottomline: I would love to manufacturing lead the rebound in jobs, but with no jobs created it is troubling. This could be due to the sector having a strong number last month and auto companies not shutting down as many assembly lines this year versus year past.
Bonds jumped after the news hits the wires of the terrible jobs number. The yield on the 10-year Treasury fell from 2.47% to 2.40%. This move was due to investors thinking the Fed will not make a move to raise interest rates anytime soon due to the poor employment picture in the country. The yield is currently at 2.41%.
Bottomline: I remain a major bear on bonds and will not look to put any money into U.S. Treasuries. Would you lend the U.S. government money at 2.41% for 10 years??
Stocks also jumped on the news as the futures went from down 6 points on the S&P 500 to a loss of only 1 point after the news was released. Again investors are anticipating low interest rates well into 2015, which is a good situation for equities. The S&P 500 is currently down 2 points after opening a few points lower.
Bottomline: I feel the action will be choppy throughout the day, especially in the first few hours of trading. However, longer term the ugly jobs number will put pressure on the Fed to keep interest rate at historical lows - a positive for stocks. My view of Dow 20,000 and S&P 500 2,400 remain for the next 12 months. Investors need to be in the stock market.