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Jobs report Review - Rosenberg Feb 5 2010

Jobs report Review - Rosenberg Feb 5 2010

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Published by ETFDesk.com
labour market conditions can still be described as being somewhat abnormal
labour market conditions can still be described as being somewhat abnormal

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Published by: ETFDesk.com on Feb 05, 2010
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David A. RosenbergFebruary 5, 2010
 Chief Economist & Strategist Economic Commentarydrosenberg@gluskinsheff.com+ 1 416 681 8919
 
MARKET MUSINGS & DATA DECIPHERING
Lunch with Dave
WHAT EVER HAPPENED TO MEN AT WORK?
Income theme is intact —equity mutual funds saw anet outflow of $370mln inthe final week of January,while bond bondsreceived another $7.5blninflowUnbelievable productivitydata out of the U.S.A.Employment conditions inthe U.S. is still sluggish —take a look at the initial jobless claims dataMixed news on the retailfront — estimates onJanuary same-store salesare all over the mapNot everything is bearish— yes, the outlook forbusiness spending in theU.S. has improvedCanadian jobs report —upside surprise on theheadline, but details werenot that great• A technically-drivenmarket — yesterday’ssharp and broadly baseddecline in the equitymarkets was the worstwe’ve seen since April 20of last yearU.S. employment report —what ever happened tomen at work?
IN THIS ISSUE
In the overall scheme of things, considering the intense fiscal problems inEuroland, the prospect of sovereign debt defaults and the future of the regionalmonetary union, today’s U.S. payroll report is really a secondary event. Theheadline payroll result was below expected at -20k (consensus was +20k) andthere were downward revisions of 930k to the back data (April 2008 to March2009) from the much-anticipated benchmark revisions.To put the -20k headline payroll result into perspective, history shows us thatwhat is normal is that fully 24 months after a recession begins we are printing employment gains of 100k. In other words, labour market conditions can still bedescribed as being somewhat abnormal and fundamentally soft even if the paceof deterioration has abated.As we and others had been saying for so long, it was ludicrous for the Bureau of Labor Statistics to have been assuming that the economy was generating netnew jobs from business creation. As a result of the changes made to the ‘birth-death’ model, we had downward revisions in four of the prior five months(totalling 245k — for example, December was revised to show a 150k lossversus the initial -85k print). Excluding the federal government hiring lastmonth, payrolls would have declined 53k. And, while the diffusion indices forprivate payrolls and manufacturing did improve, they do remain squarely below50, which suggests that the plurality of employers are still in the process of shedding labour, more than two years after the recession officially began.In what good news there was, factory payrolls rose 11k, the first increase inthree years (the fact that Canada lost 15,700 manufacturing jobs may indeedattest to the view that we have some degree of overvaluation in the Canadiandollar to correct and vice versa for the greenback). Temp agency employmentrose a further 52k on top of a 59k increase in December and this is widelyviewed as a leading indicator for future employment.As for the workweek, another leading indicator, it rose to 33.3 hours in Januaryfrom 33.2 hours — the index of aggregate hours worked rose a healthy 0.3%MoM. It does look like the personal sector did squeeze out some decent incomegrowth as well, which may account for the better tone in the retail sales surveysthat just came out for January. Indeed, employment in this sector rebounded42k last month and average hourly earnings eked out a 0.3% MoM gain, andonce the expanded workweek is tacked on, average weekly earnings jumped0.6%. Not only that, but the factory workweek, along with the higher number of manufacturing workers, rose 0.5% MoM so expect to see a pretty good industrialproduction number (out on February 17) — validating the jump we saw in theISM manufacturing index.
Please see important disclosures at the end of this document.
Gluskin Sheff + Associates Inc.is one of Canada’s pre-eminent wealth management firms. Founded in 1984 and focused primarily on high net worth private clients, we are dedicated to meeting the needs of our clients by delivering strong, risk-adjusted returns together with the highestlevel of personalized client service. For more information or to subscribe to Gluskin Sheff economic reports
,
visit www.gluskinsheff.com
 
 
February 5, 2010
– LUNCH WITH DAVE
 
The Household survey did show a nice rebound of 541k in January and almosthalf the gains were in full-time positions. Not only that, but the number of folksworking part-time for economic reasons plummeted 849k, or by nearly 10% talk about an eye-popper.
The working-age populationin the U.S. plunged 92k inJanuary; such a decline hasoccurred but five times since1951
Be that as it may, keep in mind that the January rebound in Householdemployment fell short of recouping the entire 589k plunge in December and the job count here is still 1.5 million lower today than it was in July. After fourmonths of decline, the labour market (officially defined) rose 111k (well short of offsetting the 661k plunge in December) and together with the rebound inHousehold employment, all the job market ratios improved:
 
The jobless rate down to 9.7% from 10.0%;
 
The employment ratio up, to 58.4% from 58.2%;
 
And even the broad U6 measure of the unemployment rate slipped to a five-month low of 16.5% from 18.3%.The working-age population plunged 92k in January and such a decline hasoccurred but five times since 1951 and they most happen in January, so we couldwell be spending an inordinate amount of time analyzing a report that is rife withbad sampling. For example, we also found that despite the great headline in theHousehold survey, adult-male employment (aged 25 years and over) actually fell75k and has declined now for 18 months in a row. Moreover, the adult-maleunemployment rate yet again was at 10% in January, a level it has either been ator breached for six straight months in unprecedented string dating back to 1947.Meanwhile adult-women employment over the age of 20 posted a 529,000 jobboom. In the battle of the sexes, Venus clearly took January. Moreover, look atChart 1, male employment (aged 25 to 54 years old) plunged 114k in January andis back to levels last seen in June 1996. Almost 10% of what was once consideredthe ‘breadwinner’ part of the workforce has been extinguished during thisrecession. How can anyone realistically be excited about recovery prospectsknowing this?
CHART 1: ADULT MALE EMPLOYMENT BACK TOLEVELS LAST SEEN IN JUNE 1996
United States: Employed: Men 25-54 Years Old
(millions)
 
098765432109876 55545352515049
Source: Haver Analytics, Gluskin Sheff 
Page 2 of 12
 
February 5, 2010
– LUNCH WITH DAVE
 
Taking a big picture viewpoint, the U.S. labour market remains fundamentallyweak. Despite the clarion calls for recovery from the legions of Wall Streeteconomists and strategists, the reality is that labour market gaps remain verywide; here we are more than two years after the recession officially started and theranks of the long-term unemployed continue to swell. The average duration of unemployment rose to a record 30.2 weeks from 29.1 weeks in December; andfor the first time ever, we have more than 6.3 million Americans (up from 6.1million in December) who have been looking for a job with no luck for at least sixmonths. That is an unprecedented 41.2% share of the pool of unemployment.
While there will be manyeconomists touting today’sU.S. employment report assome inflection point, thereality is that the level ofemployment today, at 129.5million, is the exact samelevel it was in 1999
While there will be many economists touting today’s report as some inflectionpoint, and it could well be argued that we are entering some sort of healing phasein the jobs market just by mere virtue of inertia, the reality is that the level of employment today, at 129.5 million, is the exact same level it was in 1999. And,during this 11-year span of Japanese-like labour market stagnation, the working-age population has risen 29 million. Contemplate that for a moment; fully 29million people competing for the same number of jobs that existed more than adecade ago. That sounds like pretty deflationary stuff from our standpoint.Not only that, but consideration must be taken that in 2009, we had a zeropolicy rate, a $2.2 trillion Fed balance sheet and an epic 10% deficit-to-GDPratio. You could not have asked for more government stimulus. Yetemployment tumbled nearly 5 million in 2009.Here we are in 2010, and what we have on our hands is a situation where theouter limits of deficit finance have already been probed, and the Fed has pledgedto start shrinking its balance sheet and withdraw its critical support for themortgage market. Yet the deleveraging in the household sector is ongoing and itnow looks as though the economies in Asia and Europe are going be slowing down,not speeding up, in coming quarters. And of course, heightened concerns oversovereign credit quality suggest that risk premia globally are set to rise after a yearin which we had the calm before the storm. Heightened risk premia meansuncertainty, volatility and in turn a very clouded economic outlook that transcendstoday’s data release, which has already consumed too much of my time.
A TECHNICALLY-DRIVEN MARKET
 Yesterday’s sharp and broadly based decline in the equity markets was theworst session since April 20 of last year. The S&P 500 is now down 7.6% fromthe mid-January peak and the Asia-Pacific market is just 40 basis points shy of seeing a 10% correction after having its worst session in 10 weeks; emerging market equity funds lost $1.6 billion in net redemptions in the past week, thelargest outflow in nearly six months. Financials were clobbered 4.2% and ledthe decline, though basic materials weren’t too far behind. Volume swelled asall the major averages fell off — not a good sign for the bulls.
Page 3 of 12

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