4 Points to Ponder on Ugly Jobs Data

07/11/2011 11:00 am EST


Igor Greenwald

Chief Investment Strategist, MLP Profits

As disappointing as Friday’s numbers were, they signal more of the same rather than the beginning of the end, writes MoneyShow.com senior editor Igor Greenwald.

The government counted 18,000 new non-farm payroll jobs last month, and judging from the postmortems, 13,000 of these were coffin makers, as well as 4,989 undertakers, ten professional mourners, and one process server to slap a “foreclosed” sign on the recovery and turn out the lights.

Hopes inflated by the recent rebound in stocks have been viciously disappointed. Uncomfortable as things are for investors right now, they’re downright awful for the unemployed—who now number 14.1 million after an increase of 545,000 in the last three months:

Nearly half the people who continue to actively look for work haven’t sniffed a paycheck in at least six months.

Below them are 2.7 million people who have searched for a job in the last year, but not in the last month, and therefore don’t count as unemployed.

Clinging to a shaky economic rung above those two groups are the 8.6 million part-time workers unable to land a full-time gig.

And above them are the 112 million lucky full-timers—nearly 2 million fewer than roamed these United States ten years ago. Over the same span, the country’s population increased by 26 million.

No wonder wages declined marginally last month, even before accounting for inflation. And no wonder the latest jobs report is being cited as evidence that:

  • The economy remains mired in a de-facto Depression;

  • The stock market is about to nosedive;

  • That we need a bigger, better stimulus;

  • Or, alternately, that we need to follow Andrew Mellon’s advice to Herbert Hoover, and “liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate,” forsaking all attempts to resist our inevitable decline to whatever level of distress might strike the disciplinarians as perfectly natural and befitting our past transgressions.

I’m with the we-haven’t-done-enough crowd. Now might not be the best time to turn Christian Scientist and wait for a sick economy to heal itself through the power of prayer.

Now might also not be the best time to try bleeding a few more pints from a desperately anemic patient. But the Washington surgeons seem to have a different idea.

On the other hand, especially since no help is coming, it would behoove everyone not to overreact. Sure, the jobs report was devoid of the usual silver linings—like gains in hours worked or temp employment—that might signal some pent up labor demand.

But, for all the disappointment the numbers engendered, they hardly portend doom. Here are some reasons not to panic:

It’s just one month. True, May’s net gain of 25,000 non-farm jobs was scarcely better, but between February and April the same survey averaged a monthly gain of 215,000 jobs.

Is this a fundamentally different economy than we had in March? Almost certainly not.

Can it get back to the moderate job growth that prevailed earlier in the year? Some smart people think it quite likely.

It’s just one number. Without a seasonal adjustment, the payroll survey would have shown a net gain of 376,000 payroll jobs—not bad for June, which tends not to be a big jobs month.

The ADP survey released the day before showed a net gain of 157,000 non-farm private jobs. Instead of focusing on how ADP “failed” to predict the government tally, consider it a different data point, a slightly more hopeful one than any the government compiled.

Creating 18,000 jobs instead of 180,000 last month will only, at the margin, serve to boost corporate profits. It certainly won’t make them go down, as the recent formula for success has featured rapid growth in emerging markets plus market share gains and price increases closer to home.

Perhaps this is what the market hung its hat on when it managed to bounce back a bit on Friday afternoon. It’s headed for another drubbing today, but mostly on sovereign debt concerns, European as well as homemade.

The jobs gain would have been three times larger without the loss of 39,000 government positions. And these jobs are the ones government could have done something about.

What budget balancers say about the deficit could also be said about the cumulative toll of public-sector layoffs: When you’re in a hole, stop digging.

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