Silver Lining in some Employment Data

by Wayne Ferbert on June 7th, 2012

Last week’s job number was a disaster and the market got pounded for it. But the market has made a nice recovery from that news. The market today is a full 10 points above last Thursday’s close price in the S&P500 – the day before the jobs number went public.

At Buy & Hedge, we still think there are more positive signs in the U.S. economic indicators than negative signs. So, we still like the markets and have kept our money at work in the markets (note: we still hedge everything – which helps us sleep at night!).

But we realize that for markets to go higher, there has to be a supply/demand dynamic that drives the market higher. There needs to be more buyers than sellers. To get that dynamic, we need investor sentiment to be positive. It is hard for investor sentiment to go positive when the most watched economic indicator falls hard on its face: US Employment numbers last Friday, for instance.

But we have found some interesting employment data points that we think are positive and represent silver linings in the data:
  1. Yesterday, Duke University/CFO magazine published their CFO survey results. The results indicated that 60% of CFOs expect their companies to add staff. The number one reason for adding staff is that their current employees are ‘maxed out’. In other words, the staff now has been asked to take on too much as the companies have shrunk thru the recession.
  2. The US Labor Department released the quarterly productivity changes this week and the number declined in Q1 2012 falling at an annual rate of 0.9%. (see the chart) But looking at the chart, you see big spikes in productivity during the last 4 years. You would expect the impressive productivity gains to plateau over time – and it is consistent with the CFO survey above that companies are ‘maxed out’ on work per employee. This data is negative on its surface (negative productivity growth is not desired) but it reinforces the notion that job growth may be around the corner.
  3. Not big news today, but the Jobless Claims numbers for the week were down 12,000 last week to a level of 377,000. It is the first decrease in a while. Hopefully, this bucks the trend because the trend was certainly on the rise this year.

We still think the US economy is recovering – just in a more tepid fashion than any of us would like to see. If future jobs data look good, investor sentiment will rebound and we will see it in the GDP numbers also. Then, investors will be willing to get back in to the market – and drive stocks higher!

Source: US Dept of Labor / Wall Street Journal Chart

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