Climbing a wall of worry

As we prepare for Friday’s US Department of Labor’s release of the May non-farm payrolls report complete with the unemployment rate,  I have rarely seen such confusion about how good or not so good it will be. Everyone is so negative because of the soft patch the economy has hit, more on that later.   I will begin by saying that it will show a gain but the range of gains is estimated from sub 100k to almost 300k of jobs created, I think it will be a high number (200k plus because the birth/death adjustment).  The weekly jobless number which comes out every Thursday morning at 6:30 a.m. and has been spiking slightly up for the last month after 1 ½ years of relatively consistent drops in the weekly number bodes poorly for this Friday’s number.  This bump up in weekly jobless numbers may be an aberration and I hope it is but I am concerned.  Concerned because as this weekly number has been moving up, the regional Fed manufacturing numbers have been coming in rather poorly, the widely anticipated S&P Case-Shiller home price index for March dropped 3.6% today vs. the expected -3.4%.  This has some people speculating that the already moribund real estate market is double dipping, I don’t know if is, as this is dated material and April and May show something different.  What I do know is  that the manufacturing data while still showing expansion have been dropping, today’s consumer confidence number was weaker than expected because of higher gas prices, the housing market is weak regardless what the April and May numbers will show months from now.  The Euro is imploding over the PIIGS sovereign debt default issues, China is trying to slow it’s economy again, the US’s omnipresent debt  ceiling and budget impasse, and a  limp economy that just can’t pick up steam.  This speaks nothing of the concluding with the Fed’s QE2 which is coming to a fitful end right about now.  Have I depressed you yet, don’t worry the silver lining is coming.   In case you have been on vacation on a media free island, the stock market has been selling off for 2 weeks now because of these reasons.  It is hard to find good economic news these days, but the global expansion is not dead as central banks around the world who have had extremely easy money policies for over 2 years, and corporations have learned to do more with less, the world is awash in oil and gas and I believe the prices will come down now.  This all leads to better economic times over the next year.  The stock market is smart, trust me on this and it will bottom from this soft patch and move up before the individual investor realizes it.  If we get a bad number on Friday, the stock market should sell off, if we get a good number, I think the market will rally and then fail as investors are buying too much into the bad economic numbers of late, remember a rallying market climbs a wall of worry. 

Way above consensus April Jobs report

The Department of Labor just released the April jobs report which was up 244,000 vs. the 185,000 expected number which is the most since December of 2006 and the unemployment rate moved up to 9% which is a good thing as it means that discouraged workers have re-entered the job market looking for employment.  The unemployment rate had ticked down to 8.8% last month because many people had taken themselves out of the job market as they had become too discouraged to look for a job.  Every aspect of this jobs report was good, hourly earnings increased by 0.3% vs. 0.2%, private sector job growth was 268k vs. 200k and February’s number was revised substantially higher from 68k to 235k.  March also was revised for the better to 221k from prior 198k.  Positive revisions for the better indicate an even better hiring environment.  The only negative and I am picking nits here by even mentioning it is the work week was 33.6 vs. an expected 34.3 hours.  What this all means is that employers continued to hire as they were paying existing employees more and this bodes well for consumer spending and GDP as we are a consumer driven economy.  In reaction to the data, the stock markets is moving substantially higher, bonds are selling off and the US dollar is selling off as well, this is a classic risk on trade as a result of a very good jobs number. 

Something's a Miss

I am getting ready for tomorrow’s big April jobs number from the Department of Labor, but am worried about a less than stellar number.  I hope I am wrong and probably am but this week’s ADP private sector jobs number was up by 179k but far weaker than the 200k expected number.  Today’s weekly jobless number ratcheted way to 474k from the expected 400k, this is very unsettling because the downward sloping trendline that has been in place for months now has broken to the upside, this portends a weak hiring environment.  This week’s numbers won’t be included in Friday’s number but makes me worry that the trend did not start this week.  If that is not enough, yesterday’s ISM non-manufacturing came down to 52.8 from last month’s 57.3, this still implies an expanding service sector as any number above 50 is expanding and anything below 50 is contracting.  This is the second month in a row that the service sector has slowed its expansion and that is another reason I am worried that Friday’s number may come in weaker than thought.  I think the US will still create jobs in the private sector and shed jobs in the government arena, that is as it should be however we need to be creating 400k plus jobs a month just to catch up from the recession and while 2  months in a row of 200k job creation is better than a sharp poke in the eye, it is still weak.  I want to be very clear here that I am not bearish on the economy or the markets yet, but my antennae is up for any and all suspicious market data going forward now.  The market is expecting another month of 200k job creation from April, anything short of 175 will add to the selling we have been getting and needing by the way.  If the jobs number is above 240k, then I think we get a relief rally in all risk assets, i.e. stocks, the US dollar  and commodities and selling of US treasuries.  One positive takeaway this week is that the 1^st quarter productivity number rose by 1.6% and unit labor costs rose 1% in Q1 as well.  This means that employers were working their employees harder and having to pay them more in the 1^st quarter than the 4^th quarter of 2010.  This isn’t new news as I have been saying for months that I thought this was happening, it merely confirms my thesis that at some point this year employers will be forced to hire more employees in order to grow.  I just hope that a slowdown in the economy as a result of the Fed stopping the purchases of US Treasury securities doesn’t derail it.  Right now the bond and stock market is telling me that a slowdown or double dip mini recession is more possible now.